U.S. patent number 10,445,829 [Application Number 14/561,967] was granted by the patent office on 2019-10-15 for diverse options order types in an electronic guaranteed entitlement environment.
This patent grant is currently assigned to NYSE Group, Inc.. The grantee listed for this patent is NYSE Group, Inc.. Invention is credited to Paul D. Adcock, Michael A. Cormack, Amy Farnstrom, Robert A. Hill.
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United States Patent |
10,445,829 |
Adcock , et al. |
October 15, 2019 |
Diverse options order types in an electronic guaranteed entitlement
environment
Abstract
An enhanced system and method for handling, matching and
executing a diverse group of limit-priced orders in an electronic
options environment is disclosed. Most of the order types disclosed
are automatically repriced and reposted as the NBBO changes to
increase their execution opportunities. Market maker entitlements
are integrated with the order processing, so that the market maker
is guaranteed an allocation of the trade if the market maker is at
the NBBO when an order priced at or better than the NBBO is
received. Once posted to the order book, the displayed price of an
order may be eligible for preferential execution in a market maker
entitlement process, regardless of whether the displayed price is
original or has been automatically repriced.
Inventors: |
Adcock; Paul D. (Burr Ridge,
IL), Cormack; Michael A. (Vancouver, CA),
Farnstrom; Amy (Oakland, CA), Hill; Robert A. (LaGrange,
IL) |
Applicant: |
Name |
City |
State |
Country |
Type |
NYSE Group, Inc. |
New York |
NY |
US |
|
|
Assignee: |
NYSE Group, Inc. (New York,
NY)
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Family
ID: |
38982007 |
Appl.
No.: |
14/561,967 |
Filed: |
December 5, 2014 |
Prior Publication Data
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Document
Identifier |
Publication Date |
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US 20150095209 A1 |
Apr 2, 2015 |
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Related U.S. Patent Documents
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Application
Number |
Filing Date |
Patent Number |
Issue Date |
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14029087 |
Sep 17, 2013 |
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13659676 |
Oct 22, 2013 |
8566225 |
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13068881 |
Nov 13, 2012 |
8311930 |
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11881788 |
May 24, 2011 |
7949596 |
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60834327 |
Jul 28, 2006 |
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Current U.S.
Class: |
1/1 |
Current CPC
Class: |
G06Q
40/06 (20130101); G06Q 40/04 (20130101); G06Q
40/00 (20130101); G06Q 30/06 (20130101) |
Current International
Class: |
G06Q
40/04 (20120101); G06Q 30/06 (20120101); G06Q
40/00 (20120101); G06Q 40/06 (20120101) |
Field of
Search: |
;705/37,35 |
References Cited
[Referenced By]
U.S. Patent Documents
Foreign Patent Documents
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2008/027124 |
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Mar 2008 |
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WO |
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2008/073252 |
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Jun 2008 |
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WO |
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Primary Examiner: Fu; Hao
Attorney, Agent or Firm: DLA Piper LLP (US)
Claims
The invention claimed is:
1. A method for efficient storage and retrieval of trading data in
an electronic options trading environment with market maker
participation, comprising: (a) generating, by a computing system
having at least one processor and at least one memory, each of an
order data structure and a market maker quote data structure in the
memory, the order data structure being separate from the market
maker quote data structure, the order data structure including an
order book for each of a plurality of option series, each order
book storing order data, the market maker quote data structure
configured to include a separate market maker quote book for each
of one or more of the plurality of option series, each market maker
quote book including a respective option series indicator and
configured to include a data table having first predefined fields
for exclusively storing quote data received from one or more market
makers associated with the respective option series and second
predefined fields linked to the first predefined fields for storing
associated market maker information including one or more lead
market maker indications that indicates which of the received quote
data is associated with a respective lead market maker; (b)(i)
receiving, by an order matching engine of the computing system, an
incoming order having a price, (b)(ii) retrieving, by the order
matching engine of the computing system, the side of the National
Best Bid and Offer (NBBO) opposite the incoming order, and (b)(iii)
determining, by the order matching engine of the computing system,
whether the incoming order price is equal to or overlaps with the
retrieved side of the NBBO; (c)(i) searching, by the order matching
engine of the computing system, the market maker quote data
structure, without searching the order data structure, to (a)
identify whether the incoming order is for an option series that
has a corresponding market maker quote book by determining whether
a corresponding option series indicator exists in the market maker
quote data structure and (b) identify whether the corresponding
market maker quote book includes a lead market maker indication for
a respective lead market maker by searching the second predefined
fields of the data table corresponding to the identified option
series indicator, and (c)(ii) determining, by the order matching
engine of the computing system, whether the lead market maker has a
quote at the NBBO, said (c)(i) and (c)(ii) being responsive to
determining that the incoming order price is equal to or overlaps
with the retrieved side of the NBBO; and (d) activating, by the
order matching engine, a too-executable order check routine,
responsive to determining that the incoming order is for the option
series that has the lead market maker and the lead market maker has
a quote at the NBBO, which causes the too-executable order check
routine to d(i) compute an allocation percentage for the lead
market maker, (d)(ii) match the incoming order up to the lesser of
the total size of the incoming order and the computed allocation
percentage amount for the lead market maker, when the incoming
order is automatically repriceable, and (d)(iii) cause the order
matching engine to cancel the incoming order when the incoming
order is not automatically repriceable, wherein the too-executable
order check routine and the order matching engine each comprise
respective programmed instructions executed by the at least one
processor.
2. The method of claim 1, further comprising, prior to computing
the lead market maker allocation percentage: determining, by the
computing system, whether the order book has at least one customer
order at the NBBO; determining, by the computing system, whether
the at least one customer order is displayed and was posted to the
order book prior to the lead market maker quote at the NBBO
responsive to determining that the order book has at least one
customer order at the NBBO; and matching, by the computing system,
the incoming order with the at least one customer order responsive
to determining that the at least one customer order at the NBBO is
displayed and was posted to the order book prior to the lead market
maker quote at the NBBO.
3. The method of claim 2, further comprising computing, by the
computing system, the lead market maker allocation percentage
responsive to determining that the at least one customer order at
the NBBO was posted to the order book after the lead market maker
quote at the NBBO.
4. The method of claim 2, further comprising computing, by the
computing system, the lead market maker allocation percentage
responsive to determining that the at least one customer order at
the NBBO is not displayed.
5. The method of claim 1, further comprising: providing, by the
computing system, at least one appointed market maker in the option
series in addition to the lead market maker; wherein the incoming
order is from a specified order sending firm and is directed to and
designates the at least one appointed market maker; determining, by
the computing system, whether the order sending firm is permitted
to direct orders to the designated market maker; determining, by
the computing system, whether the designated market maker has a
quote at the NBBO responsive to determining that the order sending
firm is permitted to direct orders to the designated market maker;
computing, by the computing system, an allocation percentage for
the designated market maker responsive to determining that the
designated market maker has a quote at the NBBO; and matching, by
the computing system, the incoming order up to the lesser of the
total size of the incoming order or the computed allocation
percentage amount for the designated market maker.
6. The method of claim 5, further comprising, prior to computing
the designated market maker allocation percentage: determining, by
the computing system, whether the order book has at least one
customer order at the NBBO; determining, by the computing system,
whether the at least one customer order is displayed and was posted
to the order book prior to the designated market quote at the NBBO
responsive to determining that the order book has at least one
customer order at the NBBO; and matching, by the computing system,
the incoming order with the at least one customer order responsive
to determining that the at least one customer order is displayed
and was posted to the order book prior to the designated market
maker quote at the NBBO.
7. The method of claim 6, further comprising computing, by the
computing system, the designated market maker allocation percentage
responsive to determining that the at least one customer order at
the NBBO was posted to the order book after the designated market
maker quote at the NBBO.
8. The method of claim 6, further comprising computing, by the
computing system, the designated market maker allocation percentage
responsive to determining that the at least one customer order at
the NBBO is not displayed.
9. The method of claim 1, wherein the market center includes a
display order process and a working order process, wherein after
the incoming order is matched with the lead market maker quote, the
incoming order is processed by the computing system in the display
order process and the working order process.
Description
TECHNICAL FIELD
The disclosure relates generally to the field of electronic trading
methods and systems and in particular to handling, matching and
executing a diverse group of order types in an electronic trading
environment.
BACKGROUND
The options marketplace has only become highly automated within the
past few years, and only a few exchanges are fully electronic. As
specialists and market makers have historically provided most of
the liquidity on the options marketplace, it has generally been a
quote-driven rather than an order-driven market. When sending
single-leg orders, users have traditionally been limited to market
orders or simple limit orders.
As the options marketplace increasingly resembles the order-driven
equities marketplace, there is a need for a trading platform that
allows users to send a more diverse body of order types than has
historically been utilized on the options exchanges. The equities
marketplace allows orders to route contemporaneously to multiple
market centers at multiple price levels. However, trading on the
options marketplace is still generally restricted to executing at
the NBBO only, with a few exceptions.
There is a need for a system and method that allows users to send
orders at their most aggressive prices to enhance their execution
opportunities. To ensure that orders execute at or near the NBBO,
there is a need for new order types that are automatically capped
at or near the NBBO price, but may be automatically repriced as the
NBBO changes. Such capping and repricing models allow the orders to
conform to the general practice in the options marketplace of
executing at the NBBO, but also allows the orders the opportunity
to execute further when the NBBO price changes. Additionally, there
is a need for the new order types to simultaneously respect both
traditional specialist/market maker guaranteed entitlements, when
they are applicable, and price/time priority matching
principles.
There is a need for more sophisticated order types that are
publicly displayed at the most aggressive price allowed, unlike the
"working" orders and "dark" orders of prior systems, which are
permanently or temporarily hidden from the marketplace. Such order
types are automatically repriced to lock or cross the NBBO after
satisfying all trading interest at the NBBO, unlike existing order
types such as pegged orders, which generally track the movements of
the NBBO but maintain a fixed interval away to prevent them from
becoming immediately executable. By providing a diverse variety of
limit order types with such different and sophisticated behaviors,
a user can choose an order type that accommodates his trading
strategy and encourages market participants to execute against his
displayed order.
Additionally, there is a need for a quote engine that receives and
analyzes disseminated away market best bid and offer quotation
prices, notifies the order matching engine when any quote price
touches (i.e., equals or overlaps with) any order price, and
continues to notify the order matching engine of quote price
changes so that posted orders can be repriced to take advantage of
additional execution opportunities. Accordingly, there is a need
for a .system and method that minimizes the impact of away market
best bid and offer quote traffic on the other components of the
system, especially in regard to the ability to display and execute
orders and quotes with maximum speed and efficiency.
SUMMARY
According to one aspect of the present disclosure, a method for
enhancing quote and order integration includes providing a market
center which lists a plurality of options series, wherein the
market center has an order book for each option series, has a
market maker quote book for each option series, and receives the
top-of-book best bid and offer disseminated quotation from each
away market center for each option series, and wherein the order
book, the market maker quote book, and the best bid and offer
quotations are separate until an execution opportunity is
presented.
The method further includes receiving an incoming
exchange-restricted order; a NOW order; a reprice-and-ship inside
limit order; a stand-your-ground inside limit order; a sweep limit
order; or an intermarket sweep limit order; retrieving the side of
the NBBO opposite the incoming exchange-restricted order, and
determining if the incoming order price is equal to or overlaps
with the retrieved side of the NBBO. If the incoming order price is
equal to or overlaps with the retrieved side of the NBBO, the
method further includes determining if the incoming order is for an
option series that has a lead market maker and, if so, determining
if the lead market maker has a quote at the NBBO. Wherein if the
incoming order is marketable and the lead market maker has a quote
at the NBBO, the method further includes computing an allocation
percentage for the lead market maker and matching the incoming
order up to the lesser of the total size of the incoming order or
the computed allocation percentage amount for the lead market
maker.
According to another aspect of the present disclosure, the method
may include, prior to computing the lead market maker allocation
percentage, determining if the order book has a displayed customer
order at the NBBO that was posted earlier than the lead market
maker's quote, and matching the incoming order with the at least
one customer order. According to yet another aspect of the
disclosure, the method may also have a market maker appointed in
the option series in addition to the lead market maker. Wherein if
the incoming order is from a specified order sending firm and is
directed to and designates the appointed market maker and if the
order sending firm does have permission to direct orders to the
designated market maker, the designated market maker receives the
same privileges as the lead market maker for the purpose of
executing with the incoming order up to the computed allocation
percentage amount, if the designated market maker has a quote at
the NBBO. According to another aspect of the present disclosure,
the market center may include a display order process and a working
order process, wherein, after an incoming order is matched with the
lead market maker quote, the method may process the incoming order
in the display order process and the working order process.
According to another aspect of the present disclosure, if the
incoming order executes with all resident interest but still has
quantity remaining to trade, then its price may need to be
automatically adjusted to a less aggressive price if it cannot be
posted at its user-specified limit price.
The order types described in this embodiment of the disclosure
allow users to send orders at the most aggressive prices possible,
relying on the order matching engine to cancel or reprice the
orders if they are "too" executable. To prevent an order from being
"too" executable, the order is generally checked to ensure that its
user-specified price does not exceed a configurable percentage
through the NBBO. Before an order is posted, its displayed price is
capped, if necessary, at the most aggressive price allowed by the
rules of its order type. Once posted, a capped order may be
automatically repriced as the NBBO price changes.
According to another aspect of the present disclosure, the best bid
and offer disseminated quotation from each away market center and
the consolidated national best bid and offer ("NBBO") quotations
are stored in a separate structure from the order book and the
market maker quote book, and are evaluated and retrieved by a
separate quote engine. Whereas the quote engine is able to see
order prices in the order book whether they are displayed or not to
the marketplace, it determines when an away market disseminated
quotation price touches the price of any contra-side order.
Wherein, if a disseminated best bid or offer quotation moves into
the price of a previously touched order, the quote engine notifies
the order matching engine. The order matching engine is then able
to evaluate whether any posted reprice-and-ship inside limit order
must be repriced less aggressively, and then attempts to execute
the order further. Wherein, if a disseminated best bid or offer
quotation moves away from the price of a previously touched order,
the quote engine also notifies the order matching engine. The order
matching engine is then able to evaluate whether any posted
stand-your-ground inside limit order, sweep limit order, or
intermarket sweep limit order can be repriced more aggressively,
and then attempts to execute the order further. Wherein, the order
matching engine is not notified of changes to the disseminated best
bids and offers that do not affect the order book in this
embodiment.
DESCRIPTION OF THE DRAWINGS
These and other features, aspects and advantages of the present
disclosure will become better understood with regard to the
following description, appended claims and accompanying drawings
where:
FIG. 1 is a block diagram illustrating the trading environment in
which an embodiment of the present disclosure operates;
FIG. 2 is a block diagram illustrating an overview of the
architecture involved in the equity options electronic order book
of the present disclosure;
FIG. 3 illustrates an order execution hierarchy of the equity
options electronic order book of the present disclosure;
FIGS. 4A-4B are flow diagrams illustrating a process for receiving
an incoming exchange-restricted buy order in an embodiment of the
present disclosure;
FIGS. 5A-5B are flow diagrams illustrating a process for receiving
an incoming exchange-restricted sell order in an embodiment of the
present disclosure;
FIGS. 6A-6B are flow diagrams illustrating a process for receiving
an incoming NOW buy order in an embodiment of the present
disclosure;
FIGS. 7A-7B are flow diagrams illustrating a process for receiving
an incoming NOW sell order in an embodiment of the present
disclosure;
FIGS. 8A-8B are flow diagrams illustrating a process for receiving
an incoming reprice-and-ship inside limit buy order in an
embodiment of the present disclosure;
FIGS. 9A-9B are flow diagrams illustrating a process for receiving
an incoming reprice-and-ship inside limit sell order in an
embodiment of the present disclosure;
FIGS. 10A-10B are flow diagrams illustrating a process for
receiving an incoming stand-your-ground inside limit buy order in
an embodiment of the present disclosure;
FIGS. 11A-11B are flow diagrams illustrating a process for
receiving an incoming stand-your-ground inside limit sell order in
an embodiment of the present disclosure;
FIGS. 12A-12B are flow diagrams illustrating a process for
receiving an incoming sweep limit buy order in an embodiment of the
present disclosure;
FIGS. 13A-13B are flow diagrams illustrating a process for
receiving an incoming sweep limit sell order in an embodiment of
the present disclosure;
FIGS. 14A-14B are flow diagrams illustrating a process for
receiving an incoming intermarket sweep limit buy order in an
embodiment of the present disclosure;
FIGS. 15A-15B are flow diagrams illustrating a process for
receiving an incoming intermarket sweep limit sell order in an
embodiment of the present disclosure;
FIG. 16 is a flow diagram illustrating a process for (checking if
an incoming buy order is too-executable;
FIG. 17 is a flow diagram illustrating a process for checking if an
incoming sell order is too-executable;
FIG. 18 is a flow diagram illustrating a process for handling lead
market maker guaranteed bid entitlements in an embodiment of the
present disclosure;
FIG. 19 is a flow diagram illustrating a process for handling lead
market maker guaranteed offer entitlements in an embodiment of the
present disclosure;
FIG. 20A is a flow diagram illustrating a process for handling
directed orders in an embodiment of the present disclosure;
FIG. 20B is an exemplary designated market maker/order sending firm
permissions table;
FIG. 21 is a flow diagram illustrating a process for handling
designated market maker guaranteed bid entitlements in an
embodiment of the present disclosure; and
FIG. 22 is a flow diagram illustrating a process for handling
designated market maker guaranteed offer entitlements in an
embodiment of the present disclosure.
DETAILED DESCRIPTION
Referring to FIG. 1, a trading environment in which an embodiment
of the system and method of the present disclosure operates is
depicted. The examples discussed herein describe the use and
application of the present disclosure in an equity options market
center environment, but it should be understood that the present
disclosure could be used in any type of financial instrument market
center environment (e.g., equities, futures, bonds, etc.). This
embodiment of the disclosure describes the use of multiply listed
single-leg equity options, wherein contracts for a specified
underlying security can be bought (if the option type is a call) or
sold (if the option type is a put) at a specific strike price prior
to a specific exercise date. The functionality described herein is
generally applicable to all standard options products (including
near-term options and LEAPs) in all underlying securities,
including but not limited to exchange-listed stocks,
Exchange-Traded Funds (ETFs), Holding Company Depositary Receipts
(HOLDRs), American Depositary Receipts (ADRs), and commonly traded
indices.
The trading environment of this embodiment includes a market center
20 which interacts with a number of other market centers 24 (i.e.
away markets) and traders at order sending firms 26 and market
makers 31. It should also be understood that the market center 20
referred to herein refers to a computing system having sufficient
processing and memory capabilities and does not refer to a specific
physical location. In fact, in certain embodiments, the computing
system may be distributed over several physical locations. It
should also be understood that any number of traders 26 or market
makers 31 or away market centers 24 can interact with the market
center 20. The market center 20 is the market center on which a
specific trader 26 posts a specific order, and on which a specific
market maker 31 posts a specific quote. The market center 20
includes an order matching engine 21, which validates, maintains,
ranks, executes and/or routes all orders on the market center 20,
and which executes marketable quotes on the market center 20. In
this embodiment, the code for the order matching engine 21 is
stored in the market center 20's memory.
The market center 20 may also include a quote and last sale
interface 23 that interacts with the away market centers 24 to
capture quote and last sale information. This information is stored
to a best bids and offers and last sales data structure 25. This
data structure 25 is where the market best bid and offer
information is stored. This data structure 25 is also where the
market trade reports (prints) are stored. The market center 20 may
also include an order and trade parameters data structure 27. The
order and trade parameters data structure 27 stores predefined
trading parameters and rules that are used by the order matching
engine 21 in matching orders and executing trades. The market
center 20 may also include an order and execution interface 28
which interacts with the traders 26, the market makers 31, the away
market centers 24 and the order matching engine 21 in the order
execution process.
The market center 20 may also include an order information data
structure 29 where order information is stored and a trade
information data structure 30 where completed trade information is
stored. The market center 20 may also include a market maker
interface 32 that interacts with market makers 31 to capture market
maker bids and offers in assigned issues. These bids and offers are
depicted in a market maker quote structure 33 in this
illustration.
Throughout the discussion herein, it should be understood that the
details regarding the operating environment, data structures, and
other technological elements surrounding the market center 20 are
by way of example and that the present disclosure may be
implemented in various differing forms. For example, the data
structures referred to herein may be implemented using any
appropriate structure, data storage, or retrieval methodology
(e.g., local or remote data storage in data bases, tables, internal
arrays, etc.). Furthermore, a market center of the type described
herein may support any type of suitable interface on any suitable
computer system.
Referring now to FIG. 2, a trading environment in which orders and
quotes are ranked and executed is depicted. Because the market
center 20 disclosed in this embodiment is order-driven, which
encourages orders and quotes to compete equally, the market center
20 is designed to allow users to send a very diverse and
sophisticated body of order types. For example, with the disclosed
market center 20, a user may, as described in detail below, use the
sophisticated order types available to mask their trading
intentions from the marketplace by using order types that do not
display all or part of an order's size or price.
The market center 20 disclosed in this embodiment also ranks all
resting orders in such a manner as to give preference to displayed
trading interest over nondisplayed trading interest at the same
price so that users are encouraged to send displayed limit orders
at the best possible prices. The market center 20 disclosed in this
embodiment can be used in a non-competing market maker environment,
a competing market maker environment and in an environment that
does not use market makers in some or all of the issues. In a
preferred embodiment, described herein, the market center 20 has a
non-competing market maker environment. The market center order
books are largely flat and open based on price/time principles. As
described below, lead market makers are guaranteed participation
entitlements, but only when they are already on the NBBO in their
assignments, which encourages tighter spreads and faster
executions.
In the non-competing market maker embodiment, described herein,
market maker quotes cannot be automatically or manually improved
for the purpose of participating with a specific incoming order,
nor can a market maker send a price-improving order for the purpose
of intercepting a specific incoming order. In, this embodiment,
market makers do not see an incoming order at all. As a result, a
user of this system that sends an order is able to trade
anonymously without divulging his or her trading intentions.
Another characteristic of this non-competing market maker
embodiment, as described below, is that only the lead market maker
(or alternatively, a specific, designated non-lead market maker who
is temporarily granted lead market maker privileges in a directed
order process) is entitled to guaranteed participation with an
incoming order, and therefore complex market maker pro rata
allocations, as used in prior systems, are not necessary in this
embodiment.
Referring specifically to FIG. 2, in this embodiment, market makers
31 can send orders and quotes to the market center 20, and order
sending firms 26 can send orders to the market center 20. Away
market centers 24 also route orders to the market center 20 and
receive routed orders from the market center 20. Such "linkage"
processing, however, is known and is not described herein. The
order and execution interface 28 includes a customer gateway
routine 28a, which, when executed, initiates a process that
determines whether and by what means a specific order sending firm
26 is eligible to send orders to the market center 20, and also
includes an order validation routine 28b which, when executed,
initiates a process that determines whether the specific order
meets all the business requirements of the market center 20. If an
order is determined to be valid, then the order and execution
interface 28 releases the order to the order matching engine 21 for
further processing. Marketable orders are executed immediately,
whereas nonmarketable orders that can execute later are posted to
an order book 29a on the order data structure 29. The order book
29a includes all active nonmarketable orders resident on the market
center 20, including fully-displayed orders, partially-displayed
order and nondisplayed orders.
As illustrated in FIG. 2, market makers 31 may send orders as well.
If a market maker's order is determined to be valid, as with an
order sending firm's order, then the order and execution interface
28 releases the order to the order matching engine 21 for further
processing. As with order sending firm orders, marketable orders
are executed immediately, whereas nonmarketable orders are posted
to the same order book 29a as are orders from order sending firms
26.
The market maker interface 32 includes a market maker direct
connect routine 32a, and also includes a market maker quote engine
32b, which, when executed, initiates a process that receives and
analyzes market maker quotes. The quote and last sale interface 23
includes a quote engine 23a, which, when executed, initiates a
process that receives and analyzes away market BBO quotes and
receives and analyzes the consolidated NBBO quote.
In this embodiment, the order matching engine 21 includes a display
order routine 21a, a working order routine 21b and an away market
routine 21c. When executed, the display order routine 21a
implements a process that maintains and ranks displayed orders. As
indicated in FIG. 2, market maker quotes are integrated with the
display order routine 21a. The working order routine 21b, when
executed, implements a process that maintains and ranks working
orders. Working orders are orders having a conditional or
undisplayed price and/or size that is not disclosed to the
marketplace, but is electronically accessible for matching, e.g., a
discretionary order. Working orders are described in detail
elsewhere. The order types of this disclosure are all considered to
be fully-displayed orders, even if their limit prices are sometimes
temporarily capped at or near the NBBO, because the orders may
ultimately be displayed at their original user-specified prices
when the NBBO moves to a price that allows this. In contrast, the
discretionary price of a discretionary order is never displayed
publicly, by definition.
The display order routine 21a receives and processes
fully-displayed orders and partially-displayed orders. When
presented with a marketable incoming order, the display order
routine 21a ranks disseminated market maker quotes and resting
displayed orders or portions thereof according to strict price/time
priority. The display order routine 21a, in this embodiment,
includes the following sub-routines: a directed order routine 21d
and a lead market maker guarantee routine 21e. The directed order
routine 21d is a routine that, when initiated, guarantees a
specified percentage of an incoming directed order to a designated
market maker after customer orders ranked ahead of the designated
market maker's quote execute first. The lead market maker routine
21e is a routine that, when initiated, guarantees a specified
percentage of an incoming non-directed order to a lead market maker
after customer orders ranked ahead of the lead market maker's quote
execute first.
The working order routine 21b receives and processes
partially-displayed orders and nondisplayed orders. The working
order routine 21b, in this embodiment, includes the following
sub-routines: a reserve routine 21g, a liquidity routine 21h, a
discretionary routine 21i and a tracking routine 21j. The reserve
routine 21g is a routine that, when initiated, ranks and maintains
reserve orders, which display a portion of the size to the
marketplace but keep another undisplayed portion in reserve. The
liquidity routine 21h is a routine that, when initiated, ranks and
maintains passive liquidity orders, which are completely
nondisclosed limit orders that grant price improvement to incoming
orders. The discretionary routine 21i is a routine that, when
initiated, ranks discretionary orders, which display a price to the
marketplace but include a superior undisplayed price. The tracking
routine 21j is a routine that, when initiated, ranks and maintains
tracking liquidity orders, which are completely nondisclosed orders
whose prices automatically track the NBBO and execute only if they
can prevent an incoming order from routing.
As illustrated in FIG. 2, although market maker quotes are
maintained in a separate market maker quote book 33a, they are
retrieved and integrated with displayed orders and
partially-displayed orders in the processes initiated when the
display order routine 21a is activated ("Display Order Process"),
which includes the directed order routine 21d and the lead market
maker guarantee routine 21e, when the order matching engine 21
evaluates matching opportunities. As also illustrated in FIG. 2,
although away market quotes are maintained in a separate away
market BBO book 25a, they are retrieved and integrated with
displayed orders, partially-displayed orders, nondisclosed orders
and market maker quotes when the order matching engine 21 evaluates
matching opportunities and routing opportunities.
FIG. 2 shows the relative rankings of various order execution
routines initiated by the order matching engine 21. As described
above, the order matching engine 21 has a display order routine
21a, a working order routine 21b, and an away market routine 21c.
The sequence of the subroutines 21d, 21e and 21g through 21k
generally correspond to the sequence in which the order matching
engine 21, in this embodiment, attempts to process an incoming
marketable order. The order matching engine 21 attempts to execute
an incoming marketable order as fully as possible in a given
routine before continuing to the next-highest ranking routine.
In this embodiment, upon receiving an incoming marketable order,
the display order routine 21a is typically initiated first, which
activates the Display Order Process. The Display Order Process
initiates the directed order routine 21d if the incoming order is a
directed order and initiates the lead market maker guarantee
routine 21e if the incoming order is unable to execute in the
directed order routine 21d. Any remaining quantity of the incoming
order is released to the Display Order Process. After the Display
Order Process has completed, if the incoming order still has
quantity available to trade, then the, working order routine 21b is
initiated next. It attempts to execute the remainder of the
incoming order in the reserve routine 21g first; in the liquidity
routine 21h second; in the discretionary routine 21i third; and in
the tracking routine 21j fourth. If the incoming order still has
quantity remaining and is eligible to route off the market center
20, then the away market routine 21c is initiated next.
Referring now to FIG. 3, the sequence in which resting orders and
quotes are ranked for execution in a preferred embodiment is shown
in greater detail. In the example depicted in FIG. 3, there are
three orders or quotes that have been ranked by each of the order
execution routine processes, at two price levels: the NBBO, and one
tick inferior to the NBBO. When the order matching engine 21
evaluates matching and pricing opportunities for a given issue, it
retrieves the order book 29a, the market maker quote book 33a, and
the away market BBO book 25a and momentarily combines them into a
single ranked list of bids and a single ranked list of offers in
local memory. All the bids (buy orders and bid quotations) are
ranked on one side of the list, and all the offers (sell orders and
offer quotations) are ranked on the opposite side of the list. The
ranked list of bids combined with the ranked list of offers is
referred to as the "virtual consolidated order and quote list."
FIG. 3 illustrates one side of an exemplary virtual consolidated
order and quote list for a given issue.
The order matching engine 21 ranks each side of the virtual
consolidated order and quote list according to price/time priority
principles, but with a preference for displayed orders and quotes
over working orders at the same price. This method of ranking is
referred to as "price/display/time priority" in this document to
indicate that an order's display characteristics (i.e., displayed
versus not displayed) trumps the time that an order is received.
Simply put, at a given price level, a nondisplayed order has a
lower priority than a displayed order that was received later. As
also shown in FIG. 3, resident orders and quotes always have
priority over away market quotes at the same price, regardless of
the time received.
Each order execution routine is responsible for ranking a subset of
the resting orders and/or quotes in the virtual consolidated order
and quote list. Resting orders and quotes are generally ranked in
the sequence shown in the example of FIG. 3. Beginning with the
first column of FIG. 3, all market maker quotes (e.g., lead market
maker quotes and non-lead market maker quotes) and all displayed
orders (e.g., exchange-restricted orders, inside limit orders,
sweep limit orders, intermarket orders and pegged orders) are
consolidated together and ranked in strict price/time priority in
the Display Order Process, regardless of the order type or quote
type. The displayed portions of partially-displayed orders (for
example, the displayed portion of a reserve order, and the
displayed portion of a discretionary order) are also combined with
the other fully-displayed order types and market maker quotes and
ranked in strict price/time priority in the Display Order
Process.
The process initiated by the directed order routine 21d ("Directed
Order Process") and the process initiated by the lead market maker
guarantee routine 21e ("LMM Guarantee Process") match a marketable
incoming order against a subset of the resting displayed orders and
market maker quotes that are combined and ranked in the Display
Order Process. In this embodiment, all displayed customer orders
that are ranked ahead of a lead market maker's quote are eligible
to execute in the LMM Guarantee Process, Similarly, all displayed
customer orders that are ranked ahead of a designated market
maker's quote are eligible to execute in the Directed Order
Process. Accordingly, the displayed portion of a customer reserve
order is eligible to execute in the Directed Order Process or in
the LMM Guarantee Process, but its nondisclosed reserve portion is
not eligible. Similarly, the displayed price of a customer
discretionary order is eligible to execute in the Directed Order
Process or the LMM Guarantee Process, but its nondisclosed
discretionary price is not eligible. If a marketable incoming order
still has quantity available to trade after it has completed
executing in the Directed Order Process or in the LMM Guarantee
Process (or alternatively, if it is unable to execute in either
process), then the order matching engine 21 attempts to execute the
order in the Display Order Process next, i.e., in strict price/time
priority, with no preference granted to customers or market
makers.
Continuing to the second column, the process initiated by the
reserve routine 21g ("Reserve Process") executes the reserve
portions of resting orders only after all eligible orders and
quotes at the same price have been executed in the Display Order
Process. Reserve portions of orders are ranked in the Reserve
Process according to the price/time priority assigned to their
displayed portions in the Display Order Process.
Continuing to the third column, the process initiated by the
liquidity routine 21h ("Liquidity Process") executes passive
liquidity orders only after any eligible reserve portions at the
same price have been executed in the Reserve Process. Passive
liquidity orders are ranked in price/time priority in the Liquidity
Process.
Continuing to the fourth column, the process initiated by the
discretionary routine 21i ("Discretionary Process") executes
discretionary orders only after any eligible passive liquidity
orders at the same price have been executed in the Liquidity
Process. Discretionary prices are ranked according to the
price/time priority assigned to their displayed prices in the
Display Order Process. It should be noted that an order executes
using discretion in the Discretionary Process only if it cannot
execute at its displayed price in the Display Order Process.
Continuing to the fifth column, the process initiated by the
tracking routine 21j ("Tracking Process") executes tracking orders
only after any eligible discretionary orders that can "step up" to
the same price have been executed in the Discretionary Process, and
the incoming order is about to route off the market center 20.
Tracking liquidity orders are ranked in price/time priority in the
Tracking Process.
Continuing to the last column, the process initiated by the routing
routine 21k ("Routing Process") routes orders to eligible away
markets if the order cannot execute at the best price on the market
center 20.
After executing against all eligible orders and quotes at the NBBO
in the sequence of their ranking (from 1 through 18 in this
example), if an incoming order is allowed to execute at a price
inferior to the NBBO, then it would continue to execute against all
eligible orders (and quotes, if allowed) at the next-best price
level, i.e., at one minimum price increment (tick) inferior to the
NBBO, in the sequence of their ranking (from 19 through 30 in this
example). As tracking orders can only execute at the NBBO by
definition, they are not shown in FIG. 3 at one tick inferior to
the NBBO. If an order type (e.g., an intermarket sweep order) is
also allowed to contemporaneously route to away markets inferior to
the NBBO, then the incoming order would continue to execute against
the eligible away market quotes at one tick inferior to the NBBO,
in the sequence of their ranking (from 31 through 33 in this
example).
It should also be noted that certain working order types (e.g.,
discretionary orders and passive liquidity orders) can execute at
prices between the spread (i.e., higher than the national best bid
and lower than the national best offer) under certain conditions. A
discretionary order is allowed to execute against an incoming order
at a price between the spread only if the incoming order is not
priced at or better than the opposite side of the NBBO.
Accordingly, an incoming order never executes in the Discretionary
Process prior to executing in the Directed Order Process or the LMM
Guarantee Process. In contrast, in a preferred embodiment, a
passive liquidity order whose price is superior to the NBBO is
allowed to execute in the Liquidity Process with an incoming
marketable order, granting price improvement to the incoming order,
before the remaining quantity of the incoming order attempts to
execute in the Directed Order Process or the LMM Guarantee Process.
This is because price priority always trumps order execution
routine priority in this embodiment. The rules regarding the
execution of passive liquidity orders at prices between the spread
is described and disclosed in co-pending and co-owned U.S. patent
application Ser. No. 11/416,756, filed May 3, 2006, entitled
"Passive Liquidity Order," which is incorporated by reference
herein. It should be understood that this list of working orders is
exemplary and that other embodiments of the disclosure may not
utilize the working orders described above or may use differing
combinations of them.
Detailed Descriptions and Examples of the Order Types
The following section describes each order type, and provides
detailed descriptions and illustrations of the processing steps for
each order type. The examples show a marketable incoming order that
participates in the lead market maker guarantee process before
executing with other orders in the order book, and routing to one
or more away markets if allowed by the rules of the order type. It
should be noted that the order and quote prices and volumes used in
these examples is by way of illustration.
Exchange-Restricted Orders
A limit-priced order may be designated as "exchange-restricted" to
indicate that it can only execute on the market center 20 and
cannot be routed. For example, an exchange-restricted sell order
that is priced at or through the NBB would execute in the sequence
shown below and any remaining portion would be immediately
canceled, repriced, or hidden, as described later:
TABLE-US-00001 Bid Side of the Virtual Consolidated Order and Quote
List Price Display Order Point Process Working Order Process
Highest 1. Displayed orders 2. Reserve 3. Passive 4. Discretionary
orders price and quotes order quantity Liquidity orders that can
step up to the (NBB) at the NBB at the NBB at the NBB NBB
An incoming exchange-restricted order that cannot execute when it
is received is immediately posted. The nonmarketable
exchange-restricted order is inserted in the internal order book
29a and ranked according to price/time priority in the Display
Order Process. The order is also disseminated to the public order
book. Posted customer exchange-restricted orders that are priced at
the NBBO are eligible to execute against incoming marketable orders
in the LMM Guarantee Process or the Directed Order Process, like
any other displayed order type, if they have time priority over the
eligible market maker quote.
An incoming exchange-restricted order that is marketable at the
opposite side of the NBBO will participate in the LMM Guarantee
Process if the lead market maker is quoting at the opposite side of
the NBBO. Similarly, if the business rules of the market center 20
allow exchange-restricted orders to be directed to a specific
market maker, then an incoming exchange-restricted order that is
marketable at the opposite side of the NBBO will participate in the
Directed Order Process if the designated market maker is quoting at
the opposite side of the NBBO.
Once an incoming exchange-restricted order executes all resident
interest at the NBBO, then the process must determine how to handle
any excess quantity. If the exchange-restricted order would lock or
cross the NBBO if it were to be posted, then in this embodiment,
the order must either be canceled or repriced, depending on the
business rules of the market center 20. If the order should be
repriced, then the process changes its price to one tick inferior
to the NBBO before posting the order. Although an
exchange-restricted order cannot proactively lock or cross the
market, once posted it will "stand its ground," i.e., will neither
route nor reprice, if another market center 24 should lock or cross
it.
In a different embodiment, if an exchange-restricted order would
lock or cross the NBBO if it were to be posted, then the order is
automatically pegged at a tick inferior to the NBBO, and continues
to reprice more aggressively as the NBBO changes. This order type
is referred to as a "Tick Back-and-Post" Order. Once the order is
displayed at its original specified price, it ceases pegging and is
never repriced again. The rules regarding the execution of Tick
Back-and-Post orders are described and disclosed in co-pending and
co-owned U.S. patent application Ser. No. 11/122,689, filed May 5,
2005, entitled "Method and System for Maintaining An Order on a
Selected Market Center," which is incorporated by reference herein.
An incoming marketable Tick Back-and-Post exchange-restricted order
implemented in this embodiment is eligible to participate in the
LMM Guarantee Process or the Directed Order Process. Similarly, a
posted Tick Back-and-Post exchange-restricted order is eligible to
participate in the LMM Guarantee Process or the Directed Order
Process if it is a customer order and is currently displayed at the
NBBO price.
In a different embodiment, if an exchange-restricted order would
lock or cross the NBBO if it were to be posted, then the order is
automatically hidden from the marketplace. This order type is
referred to as a "Hide-or-Post" order. Hide-or-Post orders can
trade through the NBBO by a specified price increment if allowed by
marketplace rules. While hidden, the order retains the same
price/time priority as if it were disclosed, executing in the
Display Order Process with incoming marketable orders. The hidden
order is disclosed to the marketplace when the NBBO moves to a
price where posting the hidden order would not cause it to lock or
cross the market. The rules regarding the execution of Hide-or-Post
orders are described and disclosed in co-pending and co-owned U.S.
patent application Ser. No. 11/122,679, filed May 5, 2005, entitled
"Method and System for Maintaining An Order on a Selected Market
Center," which is incorporated by reference herein. An incoming
marketable Hide-or-Post exchange-restricted order implemented in
this embodiment is eligible to participate in the LMM Guarantee
Process or the Directed Order Process. Similarly, a posted
Hide-or-Post exchange-restricted order is eligible to participate
in the LMM Guarantee Process or the Directed Order Process if it is
a customer order and is currently displayed at the NBBO price. If
the Hide-or-Post exchange-restricted order is hidden and its price
is superior to the NBBO, then it is eligible to execute ahead of
the LMM Guarantee Process or the Directed Order Process, regardless
of whether the order is a customer order or not, because it has
price priority.
Incoming Exchange-Restricted Buy Order Received Process
Referring now to FIGS. 4A-4B, the process is illustrated where the
order matching engine 21 receives an incoming exchange-restricted
buy order. As an exchange-restricted order cannot be routed, any
excess quantity that cannot execute on the market center 20 cannot
lock or cross the NBBO. Accordingly, in this embodiment, the excess
quantity must either be repriced or canceled, depending on the
business rules of the market center 20. It should be noted that the
repricing of an exchange-restricted order in this embodiment is a
permanent repricing, i.e., once the order is repriced, it is not
automatically adjusted as the NBO price changes, unlike other order
types described in this embodiment.
In step 402, the process retrieves the NBO, and in step 404, the
process determines if the incoming exchange-restricted buy order is
marketable. If the incoming exchange-restricted buy order is
marketable, then the process continues to step 406, where it
creates a virtual consolidated order and quote list for the option
series by combining the away market BBO book 25a, the market maker
quote book 33a, and the internal order book 29a, and ranking the
orders and quotes according to price/display/time priority, but
with a preference for resident trading interest over away market
quotes at the same price. The process continues to step 408, where
it checks if the option series has any assigned market makers. If
it does, then the process continues to step 410, where it checks if
the incoming exchange-restricted buy order is a directed order or
not. If the incoming exchange-restricted buy order is a directed
order, then the process continues to step 414 where the "Directed
Order Process" is initiated in step 2000 in FIG. 20A. If, however,
the incoming exchange-restricted buy order is not a directed order,
then the process proceeds to step 412 where the "LMM Guaranteed
Offer Process" is initiated instead in step 1900 in FIG. 19.
Regardless of whether the incoming exchange-restricted buy order
executes in the Directed Order Process, in the LMM Guaranteed Offer
Process, or in neither process (if the applicable market maker is
not quoting at the NBO and is therefore ineligible for a guaranteed
entitlement, or else if the issue does not have any assigned market
makers), if the incoming exchange-restricted buy order still has
quantity available to trade, then the process continues to step
416, where it retrieves the best offer in the virtual consolidated
order and quote list, i.e., the sell order, market maker quote, or
disseminated away market quote with the highest ranking. In step
418, the process checks if the incoming exchange-restricted buy
order is still marketable (by way of explanation, if it partially
executed in the Directed Order Process or the LMM Guaranteed Offer
Process then it is possible that it is no longer marketable if the
quotes and orders at the NBO were exhausted).
If at step 418 the process determines that the incoming
exchange-restricted buy order is still marketable, then it
continues to step 422, where it checks if the retrieved best offer
is on or off the market center 20. If the retrieved best offer is
on the market center 20, then the process continues to step 424,
where if the retrieved best offer is a market maker quote, the
process automatically generates an IOC sell pseudo-order on behalf
of the underlying market maker quote. The process continues to step
426, where it matches the incoming exchange-restricted buy order
against the retrieved sell order or the generated sell
pseudo-order, at the NBO price. If the matched sell order is a
pseudo-order, then in step 428, the process notifies the market
maker quote engine 32b of the quantity that was executed so that
the market maker quote engine 32b can decrement the underlying
market maker quote.
The process continues to step 430, where it checks if the incoming
exchange-restricted buy order still has quantity available to
trade. If it does not, then the process continues to step 442,
where it terminates as indicated. If, however, the incoming
exchange-restricted buy order does still have remaining quantity,
then the process returns to step 416, where it retrieves the
next-best offer in the virtual consolidated order and quote list
and continues to step 418, where it checks if the incoming
exchange-restricted buy order is still marketable. The process
continues to execute the incoming exchange-restricted buy order
against all resident trading interest at the NBO as described
above, until the incoming exchange-restricted buy order is
depleted, or else until the retrieved best offer is an away market
quote, as described next.
Returning to step 422, if the retrieved best offer is an away
market quote, then the incoming exchange-restricted buy order can
execute no further, as it can neither route nor trade through the
away market's quote. As the order type can never be routed by
definition, the incoming exchange-restricted buy order is not
allowed to lock or cross the NBO either. The process continues to
step 432, where it checks if the business rules of the market
center 20 specify that exchange-restricted orders should be
canceled or repriced. If the order should be canceled, then the
process continues to step 434, where it cancels the incoming
exchange-restricted buy order and terminates in step 436 as
indicated.
Returning to step 432, if, however, the business rules specify that
exchange-restricted orders should be repriced instead, then the
process continues to step 438, where the process subtracts one
minimum price increment from the NBO and reprices the incoming
exchange-restricted buy order at the "ticked back" price. The
process continues to step 440, where it ranks the remaining
quantity of the incoming exchange-restricted buy order in the
Display Order Process of the internal order book 29a according to
the price/time priority of its "ticked back" price, and
disseminates the order to the public order book. The process then
terminates in step 442 as indicated. In this embodiment, the
"ticked back" exchange-restricted buy order is never automatically
repriced again, regardless of how the NBO price changes.
Returning to step 418, if the incoming exchange-restricted buy
order is no longer marketable, then the process continues to step
440, where it ranks the remaining quantity of the order in the
Display Order Process of the internal order book 29a according to
price/time priority, and disseminates the order to the public order
book. As the order is not marketable, it can be posted at its
original price without locking or crossing the market. The process
then terminates in step 442 as indicated.
Returning to step 404, if the incoming exchange-restricted buy
order was never marketable, then the process continues to step 440
and 442 as described above, posting the order at its original
price.
Incoming Exchange-Restricted Sell Order Received Process
Referring now to FIGS. 5A-5B, the process is illustrated where the
order matching engine 21 receives an incoming exchange-restricted
sell order. This routine is very similar to the process described
above in FIGS. 4A-4B for receiving an incoming exchange-restricted
buy order.
In step 502, the process retrieves the NBB, and in step 504, the
process determines if the incoming exchange-restricted sell order
is marketable. If the incoming exchange-restricted sell order is
marketable, then the process continues to step 506, where it
creates a virtual consolidated order and quote list for the option
series. The process continues to step 508, where it checks if the
option series has any assigned market makers. If it does, then the
process continues to step 510, where it checks if the incoming
exchange-restricted sell order is a directed order or not. If the
incoming exchange-restricted sell order is a directed order, then
the process continues to step 514 where the "Directed Order
Process" is initiated in step 2000 in FIG. 20A. If, however, the
incoming exchange-restricted sell order is not a directed order,
then the process proceeds to step 512 where the "LMM Guaranteed Bid
Process" is initiated instead in step 1800 in FIG. 18.
Regardless of whether the incoming exchange-restricted sell order
executes in the Directed Order Process, in the LMM Guaranteed Bid
Process, or in neither process (if the applicable market maker is
not quoting at the NBB and is therefore ineligible for a guaranteed
entitlement, or else if the issue does not have any assigned market
makers), if the incoming exchange-restricted sell order still has
quantity available to trade, then the process continues to step
516, where it retrieves the best bid in the virtual consolidated
order and quote list, i.e., the buy order, market maker quote, or
disseminated away market quote with the highest ranking. In step
518, the process checks if the incoming exchange-restricted sell
order is still marketable (by way of explanation, if it partially
executed in the Directed Order Process or the LMM Guaranteed Bid
Process then it is possible that it is no longer marketable if the
quotes and orders at the NBB were exhausted).
If at step 518 the process determines that the incoming
exchange-restricted sell order is still marketable, then it
continues to step 522, where it checks if the retrieved best bid is
on or off the market center 20. If the retrieved best bid is on the
market center 20, then the process continues to step 524, where if
the retrieved best bid is a market maker quote, the process
automatically generates an IOC buy pseudo-order on behalf of the
underlying market maker quote. The process continues to step 526,
where it matches the incoming exchange-restricted sell order
against the retrieved buy order or the generated buy pseudo-order,
at the NBB price. If the matched buy order is a pseudo-order, then
in step 528, the process notifies the market maker quote engine 32b
of the quantity that was executed so that the market maker quote
engine 32b can decrement the underlying market maker quote.
The process continues to step 530, where it checks if the incoming
exchange-restricted sell order still has quantity available to
trade. If it does not, then the process continues to step 542,
where it terminates as indicated. If, however, the incoming
exchange-restricted sell order does still have remaining quantity,
then the process returns to step 516, where it retrieves the
next-best bid in the virtual consolidated order and quote list and
continues to step 518, where it checks if the incoming
exchange-restricted sell order is still marketable. The process
continues to execute the incoming exchange-restricted sell order
against all resident trading interest at the NBB as described
above, until the incoming exchange-restricted sell order is
depleted, or else until the retrieved best bid is an away market
quote, as described next.
Returning to step 522, if the retrieved best bid is an away market
quote, then the incoming exchange-restricted sell order can execute
no further, as it can neither route nor trade through the away
market's quote. As the order type can never be routed by
definition, the incoming exchange-restricted sell order is not
allowed to lock or cross the NBB either. The process continues to
step 532, where it checks if the business rules of the market
center 20 specify that exchange-restricted orders should be
canceled or repriced. If the order should be canceled, then the
process continues to step 534, where it cancels the incoming
exchange-restricted sell order and terminates in step 536 as
indicated.
Returning to step 532, if, however, the business rules specify that
exchange-restricted orders should be repriced instead, then the
process continues to step 538, where the process adds one minimum
price increment to the NBB and reprices the incoming
exchange-restricted sell order at the "ticked back" price. The
process continues to step 540, where it ranks the remaining
quantity of the incoming exchange-restricted sell order in the
Display Order Process of the internal order book 29a according to
the price/time priority of its "ticked back" price, and
disseminates the order to the public order book. The process then
terminates in step 542 as indicated. In this embodiment, the
"ticked back" exchange-restricted sell order is never automatically
repriced again, regardless of how the NBB price changes.
Returning to step 518, if the incoming exchange-restricted sell
order is no longer marketable, then the process continues to step
540, where it ranks the remaining quantity of the order in the
Display Order Process of the internal order book 29a according to
price/time priority, and disseminates the order to the public order
book. As the order is not marketable, it can be posted at its
original price without locking or crossing the market. The process
then terminates in step 542 as indicated.
Returning to step 504, if the incoming exchange-restricted sell
order was never marketable, then the process continues to step 540
and 542 as described above, posting the order at its original
price.
Exchange-Restricted Order Trading Example
In this example, the issue has an assigned lead market maker (LMM)
that is quoting at the NBO when a marketable incoming
exchange-restricted buy order is received. The exchange-restricted
buy order executes in the LMM Guaranteed Offer Process and the
Display Order Process before the remainder of the order is repriced
at one tick inferior to the NBO and posted to the books. The NBBO
is 2.50 to 2.60 (70.times.150).
The away market BBO book 25a looks like this:
TABLE-US-00002 Bids Offers Away Market C: Bid 30 @ 2.50 Away Market
A: Offer 50 @ 2.60 Away Market B: Bid 40 @ 2.45 Away Market B:
Offer 40 @ 2.60 Away Market A: Bid 50 @ 2.40 Away Market C: Offer
30 @ 2.65 Away Market D: Bid 20 @ 2.40 Away Market D: Offer 20 @
2.70
The market maker quote book 33a looks like this:
TABLE-US-00003 Bids Offers MM2: Bid 30 @ 2.50 LMM: Offer 40 @ 2.60
LMM: Bid 40 @ 2.45 MM2: Offer 30 @ 2.70
The internal order book 29a looks like this. Order D is on behalf
of a customer, whereas Order E is not:
TABLE-US-00004 Bids Offers Order A: Buy 10 @ 2.50 Order D: Sell 10
@ 2.60 Order B: Buy 10 @ 2.40 Order E: Sell 10 @ 2.60 Order C Buy
10 @ 2.35 Order F: Sell 10 @ 2.65
The market center BBO is 2.50 to 2.60 (40.times.60)
The public order book looks like this:
TABLE-US-00005 Bids Offers 40 @ 2.50 60 @ 2.60 40 @ 2.45 10 @ 2.65
10 @ 2.40 30 @ 2.70 10 @ 2.35
Incoming Marketable Exchange-Restricted Buy Order is Received
In step 400, the order matching engine 21 receives the following
order: Order G: Buy 150 @ 2.60, Exchange-Restricted In step 402,
the process retrieves the NBO (2.60). In step 404, the process
checks if incoming Buy Order G is marketable, i.e., is priced at or
better than the NBO. As it is, the process continues to step 406,
where it creates a virtual consolidated order and quote list. In
this example, Sell Orders D and E were received before the LMM
Offer was quoted.
The virtual consolidated order and quote list looks like this:
TABLE-US-00006 Bids Offers MM2: Bid 30 @ 2.50 Order D: Sell 10 @
2.60 Order A: Buy 10 @ 2.50 Order E: Sell 10 @ 2.60 Away Market C:
Bid 30 @ 2.50 LMM: Offer 40 @ 2.60 LMM: Bid 40 @ 2.45 Away Market
A: Offer 50 @ 2.60 Away Market B: Bid 40 @ 2.45 Away Market B:
Offer 40 @ 2.60 Order B: Buy 10 @ 2.40 Order F: Sell 10 @ 2.65 Away
Market A: Bid 50 @ 2.40 Away Market C: Offer 30 @ 2.65 Away Market
D: Bid 20 @ 2.40 MM2: Offer 30 @ 2.70 Order C: Buy 10 @ 2.35 Away
Market D: Offer 20 @ 2.70
The process continues to step 408, where it checks if this issue
has any assigned market makers. As it does, the process continues
to step 410, where it checks if incoming Buy Order G is a directed
order or not. As it is not a directed order, the process continues
to step 412, where it initiates the "LMM Guaranteed Offer Process,"
and proceeds to step 1900 in FIG. 19.
LMM Guarantee Process is in Effect for this Issue
In step 1902, the process retrieves the LMM Offer (40 @ 2.60). In
step 1904, it checks if the LMM Offer is at the NBO (2.60). As it
is, the lead market maker is entitled to guaranteed participation
with incoming Buy Order G, after any superior displayed customer
orders are executed first. The process continues to step 1908,
where it checks if incoming Buy Order G's order size (150) is
greater than two contracts. As it is, the process continues to step
1914.
Incoming Exchange-Restricted Buy Order Matches the Displayed
Customer Sell Order with Time Priority Over the LMM Offer
In step 1914, the process checks if there are any customer sell
orders displayed at the NBO, and finds posted Sell Order D. The
process continues to step 1916, where it stores the timestamp on
the LMM Offer in the parameter "LMMOfferTimestamp." In step 1918,
the process retrieves the earliest displayed customer sell order at
the NBO, Sell Order D, and in step 1920, the process compares the
timestamp of posted Sell Order D to the LMMOfferTimestamp. As
posted Sell Order D was received earlier than the LMM Offer, the
process continues to step 1922, where it matches 10 contracts of
incoming Buy Order G with posted Sell Order D, completely depleting
posted Sell Order D and removing it from the books.
The process continues to step 1924, where it checks if incoming Buy
Order still has quantity available to trade. As it still has 140
contracts remaining, the process continues to step 1928, where it
checks if there are any additional customer sell orders at the NBO.
As there are none (Sell Order E is not on behalf of a customer),
the process continues to step 1932.
Incoming Exchange-Restricted Buy Order Matches the LMM Offer
In step 1932, the process retrieves the LMMGuaranteedPercent
parameter, which is configured to 40% in this example. In step
1934, the process derives the LMMGuaranteedAllocation (56
contracts) by multiplying the LMMGuaranteedPercent (40%) by the
remaining portion of incoming Buy Order G (140 contracts). The
LMMGuaranteedAllocation is the maximum quantity of contracts that
can execute in the LMM Guarantee Process.
In step 1938, the process matches 40 contracts of incoming Buy
Order G against the LMM Offer, the lesser of the
LMMGuaranteedAllocation (56 contracts) and the LMM Offer size (40
contracts), at the NBO price of 2.60. It does this by generating an
IOC pseudo-order to Sell 40 @ 2.60 on behalf of the LMM Offer, and
executing incoming Buy Order G against the sell pseudo-order. The
LMM Offer at 2.60 is completely depleted, and is removed from the
virtual consolidated order and quote list. The process notifies the
market maker quote engine 32b to decrement the LMM Offer by the 40
contracts executed. The LMM Guaranteed Offer Process has
completed.
The virtual consolidated order and quote list now looks like
this:
TABLE-US-00007 Bids Offers MM2: Bid 30 @ 2.50 Order E: Sell 10 @
2.60 Order A: Buy 10 @ 2.50 Away Market A: Offer 50 @ 2.60 Away
Market C: Bid 30 @ 2.50 Away Market B: Offer 40 @ 2.60 LMM: Bid 40
@ 2.45 Order F: Sell 10 @ 2.65 Away Market B: Bid 40 @ 2.45 Away
Market C: Offer 30 @ 2.65 Order B: Buy 10 @ 2.40 MM2: Offer 30 @
2.70 Away Market A: Bid 50 @ 2.40 Away Market D: Offer 20 @ 2.70
Away Market D: Bid 20 @ 2.40 Order C: Buy 10 @ 2.35
The market maker quote engine 32b decrements the LMM Offer by the
40 contracts executed, completely depleting it. The market maker
quote book 33a now looks like this (the lead market maker wilt
manually replenish its offer, but this is not illustrated to
simplify the example):
TABLE-US-00008 Bids Offers MM2: Bid 30 @ 2.50 MM2: Offer 30 @ 2.70
LMM: Bid 40 @ 2.45
The internal order book 29a now looks like this:
TABLE-US-00009 Bids Offers Order A: Buy 10 @ 2.50 Order E: Sell 10
@ 2.60 Order B: Buy 10 @ 2.40 Order F: Sell 10 @ 2.65 Order C: Buy
10 @ 2.35
The market center BBO is now 2.50 to 2.60 (40.times.10)
The public order book looks like this:
TABLE-US-00010 Bids Offers 40 @ 2.50 10 @ 2.60 .rarw. 40 @ 2.45 10
@ 2.65 10 @ 2.40 30 @ 2.70 10 @ 2.35
The process continues to step 1942, where it checks if incoming Buy
Order G still has any quantity available to trade. As it still has
100 contracts remaining, the process continues to step 1946, where
it returns to the step where the routine was originally invoked,
back to step 412 of FIG. 4A.
Incoming Exchange-Restricted Buy Order Matches the Non-Customer
Sell Order
The process continues to step 416, where it retrieves the best
offer in the virtual consolidated order and quote list, which is
posted Sell Order E. In step 418, the process checks if incoming
Buy Order G's price (2.60) is greater than or equal to posted Sell
Order E's price (2.60). As the prices are equal, the process
continues to step 422, where it checks if posted Sell Order E is on
or off the market center 20. As it is a resident book order, the
process bypasses step 424 and continues to step 426, where it
matches 10 contracts of incoming Buy Order G against posted Sell
Order E, at the NBO price of 2.60. Posted Sell Order E is
completely depleted and is removed from the books. The NBBO is now
2.50 to 2.60 (70.times.90)
The virtual consolidated order and quote list now looks like
this:
TABLE-US-00011 Bids Offers MM2: Bid 30 @ 2.50 Away Market A: Offer
50 @ 2.60 Order A: Buy 10 @ 2.50 Away Market B: Offer 40 @ 2.60
Away Market C: Bid 30 @ 2.50 Order F: Sell 10 @ 2.65 LMM: Bid 40 @
2.45 Away Market C: Offer 30 @ 2.65 Away Market B: Bid 40 @ 2.45
MM2: Offer 30 @ 2.70 Order B: Buy 10 @ 2.40 Away Market D: Offer 20
@ 2.70 Away Market A: Bid 50 @ 2.40 Away Market D: Bid 20 @ 2.40
Order C: Buy 10 @ 2.35
The internal order book 29a now looks like this:
TABLE-US-00012 Bids Offers Order A: Buy 10 @ 2.50 Order F: Sell 10
@ 2.65 Order B: Buy 10 @ 2.40 Order C: Buy 10 @ 2.35
The market center BBO is now 2.50 to 2.65 (40.times.10)
The public order book looks like this:
TABLE-US-00013 Bids Offers 40 @ 2.50 10 @ 2.65 .rarw. 40 @ 2.45 30
@ 2.70 10 @ 2.40 10 @ 2.35
The process bypasses step 428 and continues to step 430, where it
checks if incoming Buy Order G still has any quantity available to
trade. As it still has 90 contracts remaining, the process returns
to step 416 and retrieves the best offer in the virtual
consolidated order and quote list, which is Away Market A's offer.
In step 418, the process checks if incoming Buy Order G's price
(2.60) is greater than or equal to Away Market A's offer (2.60). As
the prices are equal, the process continues to step 422, where it
checks if Away Market A's offer is on or off the market center 20.
As it is an away market quote, incoming Buy Order G can execute no
further, as it cannot route.
Incoming Exchange-Restricted Buy Order can Execute No Further, and
is Repriced to Prevent it from Locking the NBO
The process continues to step 432, where it checks if incoming Buy
Order G should be canceled or repriced, as it is not allowed to
lock the market. In this example, the business rules of the market
center 20 determine that it should be repriced. In this example,
the minimum price increment (tick) for this issue is 0.05.
Accordingly, the process continues to step 438, where it reprices
incoming Buy Order G at 2.55, one tick less than the NBO (2.60).
Its original user-specified limit price of 2.60 is retained for
audit purposes, but the order is displayed at the price of 2.55
from this point forward. In step 440, the process ranks Buy Order G
in the Display Order Process of the internal order book 29a
according to its new "ticked back" price of 2.55, and disseminates
Buy Order G to the public order book. The process then terminates
in step 442 as indicated. The NBBO is now 2.55 to 2.60
(90.times.90)
The virtual consolidated order and quote list now looks like
this:
TABLE-US-00014 Bids Offers Order G: Buy 90 @ 2.55 .rarw. Away Offer
50 @ 2.60 Market A: MM2: Bid 30 @ 2.50 Away Offer 40 @ 2.60 Market
B: Order A: Buy 10 @ 2.50 Order F: Sell 10 @ 2.65 Away Bid 30 @
2.50 Away Offer 30 @ 2.65 Market C: Market C: LMM: Bid 40 @ 2.45
MM2: Offer 30 @ 2.70 Away Bid 40 @ 2.45 Away Offer 20 @ 2.70 Market
B: Market D: Order B: Buy 10 @ 2.40 Away Bid 50 @ 2.40 Market A:
Away Bid 20 @ 2.40 Market D: Order C: Buy 10 @ 2.35
The internal order book 29a now looks like this:
TABLE-US-00015 Bids Offers Order G: Buy 90 @ 2.55 .rarw. Order F:
Sell 10 @ 2.65 Order A: Buy 10 @ 2.50 Order B: Buy 10 @ 2.40 Order
C: Buy 10 @ 2.35
The market center BBO is now 2.55 to 2.65 (90.times.10)
The public order book looks like this:
TABLE-US-00016 Bids Offers 90 @ 2.55 .rarw. 10 @ 2.65 40 @ 2.50 30
@ 2.70 40 @ 2.45 10 @ 2.40 10 @ 2.35
The virtual consolidated order and quote list is deleted from local
memory.
NOW Orders
A NOW order executes like an IOC order, but can also route off the
market center 20 to away markets 24 that have been designated as
"NOW-eligible" according to the business rules implemented in the
Routing Process. Only fully-electronic "fast execution" away
markets qualify for NOW order routing. A NOW-eligible away market
must be quoting at the NBBO at the time an incoming NOW order is
received, as the order must be eligible for immediate execution.
For example, a NOW sell order that is priced at or better than the
NBB would execute in the sequence shown below:
TABLE-US-00017 Bid Side of the Virtual Consolidated Order and Quote
List Price Display Order Routing Point Process Working Order
Process Process Highest 1. Displayed 2. Reserve 3. Passive 4.
Discretionary 5. Tracking 6. price orders and order Liquidity
orders that can Liquidity NOW- (NBB) quotes quantity Orders step up
to the Orders eligible NBB Away Market Bids
An incoming NOW order that cannot execute when it is received is
immediately canceled. An incoming NOW order that is executable at
the NBBO will participate in the LMM Guarantee Process if the lead
market maker is quoting at the NBBO. Similarly, if the business
rules of the market center 20 allow NOW orders to be directed to a
specific market maker, then an incoming NOW order will participate
in the Directed Order Process if the designated market maker is
quoting at the NBBO.
An incoming NOW order routes to NOW-eligible away markets in the
sequence of their ranking, which is determined by the Routing
Process. A higher-ranking away market that is not NOW-eligible is
bypassed in favor of a lower-ranking away market that is
NOW-eligible. If none of the away markets at the NBBO are
NOW-eligible, then the incoming NOW order will not route, and any
remaining quantity is immediately canceled. Any quantity of a NOW
order that is routed to a NOW=eligible away market and is
subsequently declined, or times out, is also immediately canceled
instead of being re-routed.
Incoming NOW Buy Order Received Process
Referring now to FIGS. 6A-6B, the process is illustrated where the
order matching engine 21 receives an incoming NOW buy order. In
this embodiment, a NOW order can route off the market center 20
only to NOW-eligible away markets 24 quoting at the NBBO.
In step 602, the process retrieves the NBO, and in step 604, the
process determines if the incoming NOW buy order is marketable. If
the process determines that the incoming NOW buy order is
marketable, then the process continues to step 606, where it
creates a virtual consolidated order and quote list for the option
series.
The process continues to step 608, where it checks if the option
series has any assigned market makers. If it does, then the process
continues to step 610, where it checks if the incoming NOW buy
order is a directed order or not. If the incoming NOW buy order is
a directed order, then the process continues to step 614 where the
"Directed Order Process" is initiated in step 2000 in FIG. 20A. If,
however, the incoming NOW buy order is not a directed order, then
the process proceeds to step 612 where the "LMM Guaranteed Offer
Process" is initiated instead in step 1900 in FIG. 19.
Regardless of whether the incoming NOW buy order executes in the
Directed Order Process, in the LMM Guaranteed Offer Process, or in
neither process (if the applicable market maker is not quoting at
the NBO and is therefore ineligible for a guaranteed entitlement,
or else if the issue does not have any assigned market makers), if
the incoming NOW buy order still has quantity available to trade,
then the process continues to step 616, where it retrieves the best
offer in the virtual consolidated order and quote list, i.e., the
sell order, market maker quote, or disseminated away market quote
with the highest ranking. In step 618, the process checks if the
incoming NOW buy order is still marketable (by way of explanation,
it is possible that it is no longer marketable if the quotes and
orders at the NBO were exhausted).
At step 618, if the process determines that the incoming NOW buy
order is still marketable, then it continues to step 620, where it
checks if the retrieved best offer is at the NBO. If the retrieved
best offer is at the NBO, then the process continues to step 622,
where it checks if the retrieved best offer is on or off the market
center 20. If the retrieved best offer is on the market center 20,
then the process continues to step 624, where if the retrieved best
offer is a market maker quote, the process automatically generates
an IOC sell pseudo-order on behalf of the underlying market maker
quote. The process continues to step 626, where it matches the
incoming NOW buy order against the retrieved sell order or
pseudo-order, at the NBO price. If the matched sell order is a
pseudo-order, then in step 628, the process notifies the market
maker quote engine 32b of the quantity that was executed so that
the market maker quote engine 32b can decrement the underlying
market maker quote.
The process continues to step 630, where it checks if the incoming
NOW buy order still has quantity available to trade. If it does
not, then the process continues to step 642, where it terminates as
indicated. If, however, the incoming NOW buy order does still have
remaining quantity, then the process returns to step 616, where it
retrieves the next-best offer in the virtual consolidated order and
quote list and continues to step 618, where it checks if the
incoming NOW buy order is still marketable. The process continues
to execute the incoming NOW buy order against all resident trading
interest at the NBO as described above, until the incoming NOW buy
order is depleted, or else until the retrieved best offer is an
away market quote, as, described next.
Returning to step 622, if the retrieved best offer is an away
market quote, then in step 632, the Routing Process ranks all the
away markets at the NBO according to the business rules of the
market center 20. In step 634, the Routing Process retrieves the
"NOW-eligible" parameter for the highest-ranking away market. In
step 636, it checks if the highest-ranking away market is
NOW-eligible or not. If the highest-ranking away market is eligible
to receive orders routed on behalf of underlying NOW orders, then
in step 638, the Routing Process routes to the away market as
appropriate, up to its disseminated offer size, at the NBO price.
After routing to the highest-ranking away market, the process
continues to step 640, where it checks if the incoming NOW buy
order still has quantity available to trade. If the order is
depleted, then the process terminates in step 642 as indicated.
If, however, the incoming NOW buy order still has remaining
quantity, then it continues to step 644, where it checks if there
are any additional away markets offering at the NBO. If there are,
then the process continues to step 646, where it retrieves the
next-highest ranking away market at the NBO. The process then
returns to step 634, where it retrieves the NOW-eligible parameter
for the next-highest ranking away market. If this away market is
also eligible to receive NOW orders, then the process routes to it
as described in step 638 above. The process continues until the
incoming NOW buy order is depleted, or else until there are no
additional NOW-eligible away markets at the NBO.
Returning to step 636, if the away market being evaluated is not
eligible to receive NOW orders, then the process continues to step
644, where it checks if there are any additional away markets
offering at the NBO.
Returning to step 644, if there are no additional away markets at
the NBO, then the process continues to step 648, where it cancels
the remaining quantity of the incoming NOW buy order. The process
then terminates in step 650 as indicated.
Returning to step 604, if the incoming NOW buy order is not
marketable when it is first received, then the process continues to
step 648, where it cancels the incoming NOW buy order and
terminates in step 650.
Returning to step 618, if the incoming NOW buy order's price is no
longer greater than or equal to the retrieved best offer in the
virtual consolidated order and quote list, then the process also
continues to step 648, where it cancels the remainder of the
incoming NOW buy order and terminates in step 650.
Returning to step 620, if the retrieved best offer in the virtual
consolidated order and quote list is not at the NBO, then the
process also continues to step 648, where it cancels the remainder
of the incoming NOW buy order and terminates in step 650.
Incoming NOW Sell Order Received Process
Referring now to FIGS. 7A-7B, the process is illustrated where the
order matching engine 21 receives an incoming NOW sell order. This
routine is very similar to the process described above in FIGS.
6A-6B for receiving an incoming NOW buy order.
In step 702, the process retrieves the NBB, and in step 704, the
process determines if the incoming NOW sell order is marketable. If
the process determines that the incoming NOW sell order is
marketable, then the process continues to step 706, where it
creates a virtual consolidated order and quote list for the option
series.
The process continues to step 708, where it checks if the option
series has any assigned market makers. If it does, then the process
continues to step 710, where it checks if the incoming NOW sell
order is a directed order or not. If the incoming NOW sell order is
a directed order, then the process continues to step 714 where the
"Directed Order Process" is initiated in step 2000 in FIG. 20A. If,
however, the incoming NOW sell order is not a directed order, then
the process proceeds to step 712 where the "LMM Guaranteed Bid
Process" is initiated instead in step 1800 in FIG. 18.
Regardless of whether the incoming NOW sell order executes in the
Directed Order Process, in the LMM Guaranteed Bid Process, or in
neither process (if the applicable market maker is not quoting at
the NBB and is therefore ineligible for a guaranteed entitlement,
or else if the issue does not have any assigned market makers), if
the incoming NOW sell order still has quantity available to trade,
then the process continues to step 716, where it retrieves the best
bid in the virtual consolidated order and quote list, i.e., the buy
order, market maker quote, or disseminated away market quote with
the highest ranking. In step 718, the process checks if the
incoming NOW sell order is still marketable (by way of explanation,
it is possible that it is no longer marketable if the quotes and
orders at the NBB were exhausted).
At step 718, if the process determines that the incoming NOW sell
order is still marketable, then it continues to step 720, where it
checks if the retrieved best bid is at the NBB. If the retrieved
best bid is at the NBB, then the process continues to step 722,
where it checks if the retrieved best bid is on or off the market
center 20. If the retrieved best bid is on the market center 20,
then the process continues to step 724, where if the retrieved best
bid is a market maker quote, the process automatically generates an
IOC buy pseudo-order on behalf of the underlying market maker
quote. The process continues to step 726, where it matches the
incoming NOW sell order against the retrieved buy order or
pseudo-order, at the NBB price. If the matched buy order is a
pseudo-order, then in step 728, the process notifies the market
maker quote engine 32b of the quantity that was executed so that
the market maker quote engine 32b can decrement the underlying
market maker quote.
The process continues to step 730, where it checks if the incoming
NOW sell order still has quantity available to trade. If it does
not, then the process continues to step 742, where it terminates as
indicated. If, however, the incoming NOW sell order does still have
remaining quantity, then the process returns to step 716, where it
retrieves the next-best bid in the virtual consolidated order and
quote list and continues to step 718, where it checks if the
incoming NOW sell order is still marketable. The process continues
to execute the incoming NOW sell order against all resident trading
interest at the NBB as described above, until the incoming NOW sell
order is depleted, or else until the retrieved best bid is an away
market quote, as described next.
Returning to step 722, if the retrieved best bid is an away market
quote, then in step 732, the Routing Process ranks all the away
markets at the NBB according to the business rules of the market
center 20. In step 734, the Routing Process retrieves the
"NOW-eligible" parameter for the highest-ranking away market. In
step 736, it checks if the highest-ranking away market is
NOW-eligible or not. If the highest-ranking away market is eligible
to receive orders routed on behalf of underlying NOW orders, then
in step 738, the Routing Process routes to the away market as
appropriate, up to its disseminated bid size, at the NI313 price.
After routing to the highest-ranking away market, the process
continues to step 740, where it checks if the incoming NOW sell
order still has quantity available to trade. If the order is
depleted, then the process terminates in step 742 as indicated.
If, however, the incoming NOW sell order still has remaining
quantity, then it continues to step 744, where it checks if there
are any additional away markets bidding at the NBB. If there are,
then the process continues to step 746, where it retrieves the
next-highest ranking away market at the NBB. The process then
returns to step 734, where it retrieves the NOW-eligible parameter
for the next-highest ranking away market. If this away market is
also eligible to receive NOW orders, then the process routes to it
as described in step 738 above. The process continues until the
incoming NOW sell order is depleted, or else until there are no
additional NOW-eligible away markets at the NBB.
Returning to step 736, if the away market being evaluated is not
eligible to receive NOW orders, then the process continues to step
744, where it checks if there are any additional away markets
bidding at the NBB.
Returning to step 744, if there are no additional away markets at
the NBB, then the process continues to step 748, where it cancels
the remaining quantity of the incoming NOW sell order. The process
then terminates in step 750 as indicated.
Returning to step 704, if the incoming NOW sell order is not
marketable when it is first received, then the process continues to
step 748, where it cancels the incoming NOW sell order and
terminates in step 750.
Returning to step 718, if the incoming NOW sell order's price is no
longer less than or equal to the retrieved best bid in the virtual
consolidated order and quote list, then the process also continues
to step 748, where it cancels the remainder of the incoming NOW
sell order and terminates in step 750.
Returning to step 720, if the retrieved best bid in the virtual
consolidated order and quote list is not at the NBB, then the
process also continues to step 748, where it cancels the remainder
of the incoming NOW sell order and terminates in step 750.
NOW Order Trading Example
In this example, the issue has an assigned lead market maker (LMM)
that is quoting at the NBO when a marketable incoming NOW buy order
is received. The NOW buy order executes in the LMM Guaranteed Offer
Process and the Display Order Process and then routes to an away
market at the NBO that is eligible to receive NOW orders. A
higher-ranking away market at the NBO that is not eligible to
receive NOW orders is bypassed. After routing to the NOW-eligible
away market, the remaining quantity of the NOW order is canceled
immediately. The NOW-eligible away market fills a portion of the
routed order and declines a portion. The declined portion is
canceled immediately. The NBBO is 2.50 to 2.60 (70.times.150).
The away market BBO book 25a looks like this:
TABLE-US-00018 Bids Offers Away Market C: Bid 30 @ 2.50 Away Market
A: Offer 50 @ 2.60 Away Market B: Bid 40 @ 2.45 Away Market B:
Offer 40 @ 2.60 Away Market A: Bid 50 @ 2.40 Away Market C: Offer
30 @ 2.65 Away Market D: Bid 20 @ 2.40 Away Market D: Offer 20 @
2.70
The market maker quote book 33a looks like this:
TABLE-US-00019 Bids Offers MM2: Bid 30 @ 2.50 LMM: Offer 40 @ 2.60
LMM: Bid 40 @ 2.45 MM2: Offer 30 @ 2.70
The internal order book 29a looks like this. Order D is on behalf
of a customer, whereas Order E is not:
TABLE-US-00020 Bids Offers Order A: Buy 10 @ 2.50 Order D: Sell 10
@ 2.60 Order B: Buy 10 @ 2.40 Order E: Sell 10 @ 2.60 Order C: Buy
10 @ 2.35 Order F: Sell 10 @ 2.65
The market center BBO is 2.50 to 2.60 (40.times.60)
The public order book looks like this:
TABLE-US-00021 Bids Offers 40 @ 2.50 60 @ 2.60 40 @ 2.45 10 @ 2.65
10 @ 2.40 30 @ 2.70 10 @ 2.35
Incoming Marketable NOW Buy Order is Received
In step 600, the order matching engine 21 receives the following
order: Order L: Buy 150 @ 2.65, NOW In step 602, the process
retrieves the NBO (2.60). In step 604, the process checks if
incoming Buy Order L is marketable, i.e., is priced at or better
than the NBO. As it is, the process continues to step 606, where it
combines the away market BBO book 25a, the market maker quote book
33a, and the internal order book 29a together in a virtual
consolidated order and quote list. In this example, Sell Orders D
and E were received before the LMM Offer was quoted.
The virtual consolidated order and quote list looks like this:
TABLE-US-00022 Bids Offers MM2: Bid 30 @ 2.50 Order D: Sell 10 @
2.60 Order A: Buy 10 @ 2.50 Order E: Sell 10 @ 2.60 Away Market C:
Bid 30 @ 2.50 LMM: Offer 40 @ 2.60 LMM: Bid 40 @ 2.45 Away Market
A: Offer 50 @ 2.60 Away Market B: Bid 40 @ 2.45 Away Market B:
Offer 40 @ 2.60 Order B: Buy 10 @ 2.40 Order F: Sell 10 @ 2.65 Away
Market A: Bid 50 @ 2.40 Away Market C: Offer 30 @ 2.65 Away Market
D: Bid 20 @ 2.40 MM2: Offer 30 @ 2.70 Order C: Buy 10 @ 2.35 Away
Market D: Offer 20 @ 2.70
The process continues to step 608, where it checks if this issue
has any assigned market makers. As it does, the process continues
to step 610, where it checks if incoming Buy Order L is a directed
order or not. As it is not a directed order, the process continues
to step 612, where it initiates the "LMM Guaranteed Offer Process,"
and proceeds to step 1900 in FIG. 19.
LMM Guarantee Process is in Effect for this Issue
In step 1902, the process retrieves the LMM Offer (40 @ 2.60). In
step 1904, it checks if the LMM Offer is at the NBO (2.60). As it
is, the lead market maker is entitled to guaranteed participation
with incoming Buy Order L, after any superior displayed customer
orders are executed first. The process continues to step 1908,
where it checks if incoming Buy Order L's order size (150) is
greater than two contracts. As it is, the process continues to step
1914.
Incoming NOW Buy Order Matches the Displayed Customer Sell Order
with Time Priority Over the LMM Offer
In step 1914, the process checks if there are any customer sell
orders displayed at the NBO, and finds posted Sell Order D. The
process continues to step 1916, where it stores the timestamp on
the LMM Offer in the parameter "LMMOfferTimestamp." In step 1918,
the process retrieves the earliest displayed customer sell order at
the NBO, Sell Order D, and in step 1920, the process compares the
timestamp of posted Sell Order D to the LMMOfferTimestamp. As
posted Sell Order D was received earlier than the LMM Offer, the
process continues to step 1922, where it matches 10 contracts of
incoming Buy Order L with posted Sell Order D, completely depleting
posted Sell Order D and removing it from the books.
The process continues to step 1924, where it checks if incoming Buy
Order L still has quantity available to trade. As it still has 140
contracts remaining, the process continues to step 1928, where it
checks if there are any additional customer sell orders at the NBO.
As there are none (Sell Order E is not on behalf of a customer),
the process continues to step 1932.
Incoming NOW Buy Order Matches the LMM Offer
In step 1932, the process retrieves the LMMGuaranteedPercent
parameter, which is configured to 40% in this example. In step
1934, the process derives the LMMGuaranteedAllocation (56
contracts) by multiplying the LMMGuaranteedPercent (40%) by the
remaining portion of incoming Buy Order L (140 contracts). The
LMMGuaranteedAllocation is the maximum quantity of contracts that
can execute in the LMM Guarantee Process.
In step 1938, the process matches 40 contracts of incoming Buy
Order L against the LMM Offer, the lesser of the
LMMGuaranteedAllocation (56 contracts) and the LMM Offer size (40
contracts), at the NBO price of 2.60. It does this by generating an
IOC pseudo-order to Sell 40.RTM. 2.60 on behalf of the LMM Offer,
and executing incoming Buy Order L against the sell pseudo-order.
The LMM Offer at 2.60 is completely depleted, and is removed from
the virtual consolidated order and quote list. The process notifies
the market maker quote engine 32b to decrement the LMM Offer by the
40 contracts executed. The LMM Guaranteed Offer Process has
completed.
The virtual consolidated order and quote list now looks like
this:
TABLE-US-00023 Bids Offers MM2: Bid 30 @ 2.50 Order E: Sell 10 @
2.60 Order A: Buy 10 @ 2.50 Away Market A: Offer 50 @ 2.60 Away
Market C: Bid 30 @ 2.50 Away Market B: Offer 40 @ 2.60 LMM: Bid 40
@ 2.45 Order F: Sell 10 @ 2.65 Away Market B: Bid 40 @ 2.45 Away
Market C: Offer 30 @ 2.65 Order B: Buy 10 @ 2.40 MM2: Offer 30 @
2.70 Away Market A: Bid 50 @ 2.40 Away Market D: Offer 20 @ 2.70
Away Market D: Bid 20 @ 2.40 Order C: Buy 10 @ 2.35
The market maker quote engine 32b decrements the LMM Offer by the
40 contracts executed, completely depleting it. The market maker
quote book 33a now looks like this (the LMM will manually replenish
its offer, but this is not illustrated to simplify the
example):
TABLE-US-00024 Bids Offers MM2: Bid 30 @ 2.50 MM2: Offer 30 @ 2.70
LMM: Bid 40 @ 2.45
The internal order book 29a now looks like this:
TABLE-US-00025 Bids Offers Order A: Buy 10 @ 2.50 Order E: Sell 10
@ 2.60 Order B: Buy 10 @ 2.40 Order F: Sell 10 @ 2.65 Order C: Buy
10 @ 2.35
The market center BBO is now 2.50 to 2.60 (40.times.10)
The public order book looks like this:
TABLE-US-00026 Bids Offers 40 @ 2.50 10 @ 2.60 .rarw. 40 @ 2.45 10
@ 2.65 10 @ 2.40 30 @ 2.70 log @ 2.35
The process continues to step 1942, where it checks if incoming Buy
Order L still has any quantity available to trade. As it still has
100 contracts remaining, the process continues to step 1946, where
it returns to the step where the routine was originally invoked,
back to step 612 of FIG. 6A.
Incoming NOW Buy Order Matches the Non-Customer Sell Order
The process continues to step 616, where it retrieves the best
offer in the virtual consolidated order and quote list, which is
posted Sell Order E. In step 618, the process checks if incoming
Buy Order L's price (2.65) is greater than or equal to posted Sell
Order E's price (2.60). As incoming Buy Order L's price is higher,
the process continues to step 620, where it checks if posted Sell
Order E's price (2.60) is at the NBO (2.60). As Sell Order E is at
the NBO, the process continues to step 622, where it checks if
posted Sell Order E is on or off the market center 20. As it is a
resident book order, the process bypasses step 624 and continues to
step 626, where it matches 10 contracts of incoming Buy Order L
against posted Sell Order E, at the NBO price of 2.60. Posted Sell
Order E is completely depleted and is removed from the books. The
NBBO is now 2.50 to 2.60 (70.times.90)
The virtual consolidated order and quote list now looks like
this:
TABLE-US-00027 Bids Offers MM2: Bid 30 @ 2.50 Away Market A: Offer
50 @ 2.60 Order A: Buy 10 @ 2.50 Away Market B: Offer 40 @ 2.60
Away Market C: Bid 30 @ 2.50 Order F: Sell 10 @ 2.65 LMM: Bid 40 @
2.45 Away Market C: Offer 30 @ 2.65 Away Market B: Bid 40 @ 2.45
MM2: Offer 30 @ 2.70 Order B: Buy 10 @ 2.40 Away Market D: Offer 20
@ 2.70 Away Market A: Bid 50 @ 2.40 Away Market D: Bid 20 @ 2.40
Order C: Buy 10 @ 2.35
The internal order book 29a now looks like this:
TABLE-US-00028 Bids Offers Order A: Buy 10 @ 2.50 Order F: Sell 10
@ 2.65 Order B: Buy 10 @ 2.40 Order C: Buy 10 @ 2.35
The market center BBO is now 2.50 to 2.65 (40.times.10)
The public order book looks like this:
TABLE-US-00029 Bids Offers 40 @ 2.50 10 @ 2.65 .rarw. 40 @ 2.45 30
@ 2.70 10 @ 2.40 10 @ 2.35
The process bypasses step 628 and continues to step 630, where it
checks if incoming Buy Order L still has any quantity available to
trade. As it still has 90 contracts remaining, the process returns
to step 616 and retrieves the best offer in the virtual
consolidated order and quote list, which is Away Market A's offer.
In step 618, the process checks if incoming Buy Order L's price
(2.65) is greater than or equal to Away Market A's offer (2.60). As
incoming Buy Order L's price is higher, the process continues to
step 620, where it checks if Away Market A's offer (2.60) is at the
NBO (2.60). As it is indeed at the NBO, the process continues to
step 622, where it checks if Away Market A's offer is on or off the
market center 20. As it is an away market quote, the process
continues to step 632.
Highest-Ranking Away Market is not Eligible to Receive NOW
Orders
In step 632, the Routing Process determines that Away Market A has
a higher priority for routing than Away Market B. In step 634, it
retrieves the "NOW-eligible" parameter for Away Market A from the
Routing Process. In step 636, it determines that Away Market A is
not eligible to receive routed NOW orders. Accordingly, the process
continues to step 644, where it checks if there are additional away
markets offering at the NBO.
Incoming NOW Buy Order Routes to the Best Away Market Eligible to
Receive NOW Orders
As Away Market B is also offering at the NBO, the process continues
to step 646, where it retrieves Away Market B's offer. The process
returns to step 634, where it retrieves the "NOW-eligible"
parameter for Away Market B. In step 636, it determines that Away
Market B is indeed eligible to receive routed NOW orders. The
process continues to step 638. As no prior orders have been routed
to Away Market B in this example, the process satisfies its full
disseminated offer size by routing 40 contracts to Away Market B,
at the NBO price of 2.60.
After routing to Away Market B, the process continues to step 640,
where it checks if incoming Buy Order L has any quantity still
available to trade. As it still has 50 contracts remaining, the
process continues to step 644, where it checks if there are any
additional away markets at the NBO (2.60). As there are none, the
process continues to step 648.
Remainder of the Incoming NOW Buy Order is Canceled Immediately
In step 648, the process cancels the remaining 50 contracts of
incoming Buy Order L. The process terminates in step 650 as
indicated.
Away Market Partially Fills the Routed Order; Declined Quantity is
Canceled Immediately
Away Market B fills 30 contracts and declines 10 contracts
According to the business rules for NOW orders, if an away market
declines any portion of an order that is routed on behalf of an
underlying NOW order, the declined quantity is canceled
immediately. The process does not attempt to match or route the
declined quantity. The virtual consolidated order and quote list is
deleted from local memory.
Reprice-And-Ship Inside Limit Orders
A reprice-and-ship inside limit order is capped at the inside
price, and will not execute at a price that is inferior to the
NBBO. Accordingly, it can route to away markets only if they are
quoting at the NBBO, and any remaining quantity cannot route to the
next-best price level until all the quotes at the current NBBO are
exhausted. For example, a reprice-and-ship inside limit order sell
order that is priced at or better than the NBB would execute in the
sequence shown below:
TABLE-US-00030 Bid Side of the Virtual Consolidated Order and Quote
List Price Display Order Routing Point Process Working Order
Process Process Highest 1. Displayed 2. Reserve 3. Passive 4.
Discretionary 5. Tracking 6. Away price orders and order Liquidity
orders that can Liquidity Market (NBB) quotes at the quantity at
Orders at step up to the Orders at Bids at NBB the NBB the NBB NBB
the NBB the NBB
An incoming reprice-and-ship inside limit order that cannot execute
when it is received is immediately posted. The nonmarketable
reprice-and-ship inside limit order is inserted in the internal
order book 29a and ranked according to price/time priority in the
Display Order Process. The order is also disseminated to the public
order book. Posted customer reprice-and-ship inside limit orders
that are priced at the NBBO are eligible to execute against
incoming marketable orders in the LMM Guarantee Process or the
Directed Order Process, like any other displayed order type, if
they have time priority over the eligible market maker quote.
An incoming reprice-and-ship inside limit order that is marketable
at the opposite side of the NBBO will participate in the LMM
Guarantee Process if the lead market maker is quoting at the
opposite side of the NBBO. Similarly, if the business rules of the
market center 20 allow reprice-and-ship inside limit orders to be
directed to a specific market maker, then an incoming
reprice-and-ship inside limit order that is marketable at the
opposite side of the NBBO will participate in the Directed Order
Process if the designated market maker is quoting at the opposite
side of the NBBO.
Once an incoming reprice-and-ship inside limit order executes all
resident interest and routes to all away markets quoting at the
NBBO, then the process must determine how to handle any excess
quantity. If a reprice-and-ship inside limit order's price would
cross the NBBO if it were to be posted, it is automatically
repriced at the NBBO before it is posted, i.e., the order will lock
the market but it will not cross the market. Once posted, a
reprice-and-ship inside limit order does NOT stand its ground if it
is locked or crossed by an away market 24, and routes instead. As
long as an away market 24 completely fills all contracts routed to
it, remains at the NBBO, and remains marketable against the posted
reprice-and-ship inside limit order, then additional contracts will
continue to be routed to it until the posted order is depleted.
If an away market center 24 disseminates a new quote that crosses
the price of the posted reprice-and-ship inside limit order, then
the process reprices the posted reprice-and-ship inside limit order
at the new NBBO price while contemporaneously routing to the away
market center 24. Accordingly, in this embodiment, a posted
reprice-and-ship inside limit order may be automatically repriced
less aggressively, but it will not be automatically repriced more
aggressively. If a posted reprice-and-ship inside limit order is
repriced, it loses its standing in the internal order book 29a and
is processed as if it were a new, incoming order.
Before routing to the away market center 24 that locked or crossed
the posted reprice-and-ship inside limit order, the process first
attempts to execute the repriced order in the LMM Guarantee
Process, the Display Order Process, and the Working Order Process
if possible. The process continues to ship to all away markets at
the NBBO, repricing the order less aggressively away from any
crossing markets, until the reprice-and-ship inside limit order is
depleted or until the away markets decline the routed orders.
Incoming Reprice-And-Ship Inside Limit Buy Order Received
Process
Referring now to FIGS. 8A-8B, the process is illustrated where the
order matching engine 21 receives an incoming "Reprice-and-Ship"
inside limit buy order. In this embodiment, a reprice-and-ship
inside limit buy order is automatically capped (repriced) at the
NBO whenever its price crosses the NBO, even when the cross is
initiated by an away market center 24. Instead of standing its
ground, the posted order ships to the away market that locked or
crossed it, and continues to ship additional quantity as long as
the away market continues to fill the routed orders and remains at
the NBO.
In step 802, the process retrieves the NBO, and in step 804, the
process determines if the incoming reprice-and-ship inside limit
buy order is marketable. If the process determines that the
incoming reprice-and-ship inside limit buy order is marketable,
then the process continues to step 806, where it creates a virtual
consolidated order and quote list for the option series.
The process continues to step 808, where it checks if the option
series has any assigned market makers. If it does, then the process
continues to step 810, where it checks if the incoming
reprice-and-ship inside limit buy order is a directed order or not.
If the incoming reprice-and-ship inside limit buy order is a
directed order, then the process continues to step 814 where the
"Directed Order Process" is initiated in step 2000 in FIG. 20A. If,
however, the incoming reprice-and-ship inside limit buy order is
not a directed order, then the process proceeds to step 812 where
the "LMM Guaranteed Offer Process" is initiated instead in step
1900 in FIG. 19.
Regardless of whether the incoming reprice-and-ship inside limit
buy order executes in the Directed Order Process, in the LMM
Guaranteed Offer Process, or in neither process (if the applicable
market maker is not quoting at the NBO and is therefore ineligible
for a guaranteed entitlement, or else if the issue does not have
any assigned market makers), if the incoming reprice-and-ship
inside limit buy order still has quantity available to trade, then
the process continues to step 816, where it retrieves the best
offer in the virtual consolidated order and quote list, i.e., the
sell order, market maker quote, or disseminated away market quote
with the highest ranking. In step 818, the process checks if the
incoming reprice-and-ship inside limit buy order is still
marketable (by way of explanation, it is possible that it is no
longer marketable if the quotes and orders at the NBO were
exhausted).
If at step 818 the process determines that the incoming
reprice-and-ship inside limit buy order is still marketable, then
it continues to step 820, where it checks if the retrieved best
offer is at the NBO. If the retrieved best offer is at the NBO,
then the process continues to step 822, where it checks if the
retrieved best offer is on or off the market center 20. If the
retrieved best offer is on the market center 20, then the process
continues to step 826, where if the retrieved best offer is a
market maker quote, the process automatically generates an IOC sell
pseudo-order on behalf of the underlying market maker quote. The
process continues to step 828, where it matches the incoming
reprice-and-ship inside limit buy order against the retrieved sell
order or the generated sell pseudo-order, at the NBO price. If the
matched sell order is a pseudo-order, then in step 830, the process
notifies the market maker quote engine 32b of the quantity that was
executed so that the market maker quote engine 32b can decrement
the underlying market maker quote.
The process continues to step 832, where it checks if the incoming
reprice-and-ship inside limit buy order still has quantity
available to trade. If it does not, then the process continues to
step 842, where it terminates as indicated. If, however, the
incoming reprice-and-ship inside limit buy order does still have
remaining quantity, then the process returns to step 816, where it
retrieves the next-best offer in the virtual consolidated order and
quote list and continues to step 818, where it checks if the
incoming reprice-and-ship inside limit buy order is still
marketable. The process continues to execute the incoming
reprice-and-ship inside limit buy order against all resident
trading interest at the NBO as described above, until the incoming
reprice-and-ship inside limit buy order is depleted, or else until
the retrieved best offer is an away market quote, as described
next.
Returning to step 822, if the retrieved best offer is an away
market quote, then in step 824, the process releases the incoming
reprice-and-ship inside limit buy order to the Routing Process,
which routes to the highest-ranking away market as appropriate, up
to its disseminated offer size, at the NBO price. After routing to
the away market, the process continues to step 832, where it checks
if the incoming reprice-and-ship inside limit buy order still has
quantity available to trade. If the order is depleted, then the
process terminates in step 842 as indicated. If, however, the order
still has remaining quantity, then the process returns to step 816,
where it retrieves the next best offer, and if the retrieved best
offer is at the NBO, routes to the next-highest ranking away market
according to the steps just described.
Returning to step 820, if, however, the retrieved best offer is not
at the NBO, then the incoming order can execute no further, and the
process continues to step 834 instead. In step 834, the process
caps the incoming reprice-and-ship inside limit buy order's price
at the NBO so that it locks, but does not cross, the market. The
process then continues to step 836, where it ranks the capped order
in the Display Order Process of the internal order book 29a
according to the price/time priority of its capped price (the NBO).
The process also disseminates the order to the public order book at
its capped (NBO) price.
As indicated at step 838, while the reprice-and-ship inside limit
buy order is posted, if an away market disseminates an offer whose
price crosses the posted reprice-and-ship inside limit buy order's
price, then the quote engine 23a notifies the order matching engine
21 of the cross. The process reprices the capped reprice-and-ship
inside limit buy order less aggressively at the new NBO price. The
repriced order loses its standing in the order book 29a, and is
processed as if it were a new incoming order, but at the capped NBO
price. The process returns to step 802 and attempts to execute the
repriced buy order in the LMM Guarantee Offer Process, the Display
Order Process, and the Working Order Process as described above in
steps 802 through 822 before routing to the away market 24 that
crossed the order and caused it to reprice. The process routes to
the away market in step 824, up to the lesser of the away market's
disseminated offer size and the remaining quantity of the
reprice-and-ship inside limit buy order, at the new NBO price. Any
remaining portion of the order is re-ranked in price/time priority
according to its new N130 price in step 836.
As indicated at step 839, while the reprice-and-ship inside limit
buy order is posted, if an away market disseminates an offer whose
price locks the posted reprice-and-ship inside limit buy order's
price, then the quote engine 23a notifies the order matching engine
21 of the lock. As the order does not need to be repriced, it could
keep its standing in the internal order book 29a. However, to allow
the order to execute further, the process pulls the posted
reprice-and-ship inside limit buy order from the order book 29a,
and treats it as if it were a new incoming order. The process
returns to step 802 and attempts to execute the buy order in the
LMM Guaranteed Offer Process, the Display Order Process, and the
Working Order Process as described above in steps 802 through 822
before routing to the away market 24 that locked the order. The
process routes to the away market in step 824, up to the lesser of
the away market's disseminated offer size and the remaining
quantity of the reprice-and-ship inside limit buy order. Any
remaining portion of the reprice-and-ship inside limit buy order is
re-ranked in price/time priority in step 836.
As indicated at step 840, whenever an away market fills the full
quantity of an order routed on behalf of the posted
reprice-and-ship inside limit buy order, the process ships
additional quantity to the away market, up to its disseminated
offer size, if the away market and the posted reprice-and-ship
inside limit buy order are both still priced at the NBO. The
process continues to route additional quantity to the away market
as long as the away market continues to fill the routed orders,
even if the away market does not update its disseminated offer. The
process then terminates in step 842 as indicated.
Returning to step 804, if the incoming reprice-and-ship inside
limit buy order was never marketable, then the process continues to
steps 836 through 842 as described above.
Returning to step 818, if the incoming reprice-and-ship inside
limit buy order is no longer marketable, then the process continues
to steps 836 through 842 as described above.
Incoming Reprice-And-Ship Inside Limit Sell Order Received
Process
Referring now to FIGS. 9A-9B, the process is illustrated where the
order matching engine 21 receives an incoming reprice-and-ship
inside limit sell order. This routine is very similar to the
process described above in FIGS. 8A-8B for receiving an incoming
reprice-and-ship inside limit order buy order.
In step 902, the process retrieves the NBB, and in step 904, the
process determines if the incoming reprice-and-ship inside, limit
sell order is marketable. If the process determines that the
incoming reprice-and-ship inside limit sell order is marketable,
then the process continues to step 906, where it creates a virtual
consolidated order and quote list for the option series.
The process continues to step 908, where it checks if the option
series has any assigned market makers. If it does, then the process
continues to step 910, where it checks if the incoming
reprice-and-ship inside limit sell order is a directed order or
not. If the incoming reprice-and-ship inside limit sell order is a
directed order, then the process continues to step 914 where the
"Directed Order Process" is initiated in step 2000 in FIG. 20A. If,
however, the incoming reprice-and-ship inside limit sell order is
not a directed order, then the process proceeds to step 912 where
the "LMM Guaranteed Bid Process" is initiated instead in step 1800
in FIG. 18.
Regardless of whether the incoming reprice-and-ship inside limit
sell order executes in the Directed Order Process, in the LMM
Guaranteed Bid Process, or in neither process (if the applicable
market maker is not quoting at the NBB and is therefore ineligible
for a guaranteed entitlement, or else if the issue does not have
any assigned market makers), if the incoming reprice-and-ship
inside limit sell order still has quantity available to trade, then
the process continues to step 916, where it retrieves the best bid
in the virtual consolidated order and quote list, i.e., the buy
order, market maker quote, or disseminated away market quote with
the highest ranking. In step 918, the process checks if the
incoming reprice-and-ship inside limit sell order is still
marketable (by way of explanation, it is possible that it is no
longer marketable if the quotes and orders at the NBB were
exhausted).
If at step 918 the process determines that the incoming
reprice-and-ship inside limit sell order is still marketable, then
it continues to step 920, where it checks if the retrieved best bid
is at the NBB. If the retrieved best bid is at the NBB, then the
process continues to step 922, where it checks if the retrieved
best bid is on or off the market center 20. If the retrieved best
bid is on the market center 20, then the process continues to step
926, where if the retrieved best bid is a market maker quote, the
process automatically generates an IOC buy pseudo-order on behalf
of the underlying market maker quote. The process continues to step
928, where it matches the incoming reprice-and-ship inside limit
sell order against the retrieved buy order or the generated buy
pseudo-order, at the NBB price. If the matched buy order is a
pseudo-order, then in step 930, the process notifies the market
maker quote engine 32b of the quantity that was executed so that
the market maker quote engine 32b can decrement the underlying
market maker quote.
The process continues to step 932, where it checks if the incoming
reprice-and-ship inside limit sell order still has quantity
available to trade. If it does not, then the process continues to
step 942, where it terminates as indicated. If, however, the
incoming reprice-and-ship inside limit sell order does still have
remaining quantity, then the process returns to step 916, where it
retrieves the next-best bid in the virtual consolidated order and
quote list and continues to step 918, where it checks if the
incoming reprice-and-ship inside limit sell order is still
marketable. The process continues to execute the incoming
reprice-and-ship inside limit sell order against all resident
trading interest at the NBB as described above, until the incoming
reprice-and-ship inside limit sell order is depleted, or else until
the retrieved best bid is an away market quote, as described
next.
Returning to step 922, if the retrieved best bid is an away market
quote, then in step 924, the process releases the incoming
reprice-and-ship inside limit sell order to the Routing Process,
which routes to the highest-ranking away market as appropriate, up
to its disseminated Bid size, at the NBB price. After routing to
the away market, the process continues to step 932, where it checks
if the incoming reprice-and-ship inside limit sell order still has
quantity available to trade. If the order is depleted, then the
process terminates in step 942 as indicated. If, however, the order
still has remaining quantity, then the process returns to step 916,
where it retrieves the next best bid, and if the retrieved best bid
is at the NBB, routes to the next-highest ranking away market
according to the steps just described.
Returning to step 920, if, however, the retrieved best bid is not
at the NBB, then the incoming order can execute no further, and the
process continues to step 934 instead. In step 934, the process
caps the incoming reprice-and-ship inside limit sell order's price
at the NBB so that it locks, but does not cross, the market. The
process then continues to step 936, where it ranks the capped order
in the Display Order Process of the internal order book 29a
according to the price/time priority of its capped price (the NBB).
The process also disseminates the order to the public order book at
its capped (NBB) price.
As indicated at step 938, while the reprice-and-ship inside limit
sell order is posted, if an away market disseminates a bid whose
price crosses the posted reprice-and-ship inside limit sell order's
price, then the quote engine 23a notifies the order matching engine
21 of the cross. The process reprices the capped reprice-and-ship
inside limit sell order less aggressively at the new NBB price. The
repriced order loses its standing in the internal order book 29a,
and is processed as if it were a new incoming order, but at the
capped NBB price. The process returns to step 902 and attempts to
execute the repriced sell order in the LMM Guarantee Bid Process,
the Display Order Process, and the Working Order Process as
described above in steps 902 through 922 before routing to the away
market that crossed the order and caused it to reprice. The process
routes to the away market in step 924, up to the lesser of the away
market's disseminated Bid size and the remaining quantity of the
reprice-and-ship inside limit sell order, at the new NBB price. Any
remaining portion of the order is re-ranked in price/time priority
according to its new NBB price in step 936.
As indicated at step 939, while the reprice-and-ship inside limit
sell order is posted, if an away market disseminates a bid whose
price locks the posted reprice-and-ship inside limit sell order's
price, then the quote engine 23a notifies the order matching engine
21 of the lock. As the order does not need to be repriced, it could
keep its standing in the internal order book 29a. However, to allow
the order to execute further, the process pulls the posted
reprice-and-ship inside limit sell order from the order book 29a,
and treats it as if it were a new incoming order. The process
returns to step 902 and attempts to execute the sell order in the
LMM Guaranteed Bid Process, the Display Order Process, and the
Working Order Process as described above in steps 902 through 922
before routing to the away market 24 that locked the order. The
process routes to the away market in step 924, up to the lesser of
the away market's disseminated bid size and the remaining quantity
of the reprice-and-ship inside limit sell order. Any remaining
portion of the reprice-and-ship inside limit sell order is
re-ranked in price/time priority in step 936.
As indicated at step 940, whenever an away market fills the full
quantity of an order routed on behalf of the posted
reprice-and-ship inside limit sell order, the process ships
additional quantity to the away market, up to its disseminated Bid
size, if the away market and the posted reprice-and-ship inside
limit sell order are both still priced at the NBB. The process
continues to route additional quantity to the away market as long
as the away market continues to fill the routed orders, even if the
away market does not update its disseminated bid. The process then
terminates in step 942 as indicated.
Returning to step 904, if the incoming reprice-and-ship inside
limit sell order was never marketable, then the process continues
to steps 936 through 942 as described above.
Returning to step 918, if the incoming reprice-and-ship inside
limit sell order is no longer marketable, then the process
continues to steps 936 through 942 as described above.
Reprice-And-Ship Inside Limit Order Trading Example
In this example, the issue has an assigned lead market maker (LMM)
that is quoting at the NBO when a marketable incoming
reprice-and-ship inside limit buy order is received. The
reprice-and-ship inside limit buy order executes in the LMM
Guaranteed Offer Process and the Display Order Process and then
routes to the away markets at the NBBO. After routing at the NBO,
the order is repriced less aggressively so that it locks, but does
not cross, the NBO. When an away market fills the order routed to
it, the posted reprice-and-ship inside limit order routes
additional quantity to it. When an away market updates its offer
price and the new offer price crosses the price of the posted
reprice-and-ship inside limit order, the order is automatically
repriced less aggressively once again so that it locks, but does
not cross, the new NBO, and the posted order routes to the away
market. When the NBO moves away from the posted reprice-and-ship
inside limit order, the order remains at its current price, and no
additional quantity is routed. The NBBO is 2.50 to 2.60
(70.times.150).
The away market BBO book 25a looks like this:
TABLE-US-00031 Bids Offers Away Market C: Bid 30 @ 2.50 Away Market
A: Offer 50 @ 2.60 Away Market B: Bid 40 @ 2.45 Away Market B:
Offer 40 @ 2.60 Away Market A: Bid 50 @ 2.40 Away Market C: Offer
30 @ 2.65 Away Market D: Bid 20 @ 2.40 Away Market D: Offer 20 @
2.70
The market maker quote book 33a looks like this:
TABLE-US-00032 Bids Offers MM2: Bid 30 @ 2.50 LMM: Offer 40 @ 2.60
LMM: Bid 40 @ 2.45 MM2: Offer 30 @ 2.70
The internal order book 29a looks like this. Order D is on behalf
of a customer, whereas Order E is not:
TABLE-US-00033 Bids Offers Order A: Buy 10 @ 2.50 Order D: Sell 10
@ 2.60 Order B: Buy 10 @ 2.40 Order E: Sell 10 @ 2.60 Order C: Buy
10 @ 2.35 Order F: Sell 10 @ 2.65
The market center BBO is 2.50 to 2.60 (40.times.60)
The public order book looks like this:
TABLE-US-00034 Bids Offers 40 @ 2.50 60 @ 2.60 40 @ 2.45 10 @ 2.65
10 @ 2.40 30 @ 2.70 10 @ 2.35
Incoming Marketable Reprice-And-Ship Inside Limit Buy Order is
Received
In step 800, the order matching engine 21 receives the following
order: Order H: Buy 250 @ 2.65, Reprice-and-Ship Inside Limit In
step 802, the process retrieves the NBO (2.60). In step 804, the
process checks if incoming Buy Order H is marketable, i.e., is
priced at or better than the NBO. As it is, the process continues
to step 806, where it combines the away market BBO book 25a, the
market maker quote book 33a, and the internal order book 29a
together in a virtual consolidated order and quote list, which it
ranks in price/display/time priority, but with a preference for
resident interest over away market interest at the same price
level. In this example, Sell Orders D and E were received before
the LMM Offer was quoted.
The virtual consolidated order and quote list looks like this:
TABLE-US-00035 Bids Offers MM2: Bid 30 @ 2.50 Order D: Sell 10 @
2.60 Order A: Buy 10 @ 2.50 Order E: Sell 10 @ 2.60 Away Market C:
Bid 30 @ 2.50 LMM: Offer 40 @ 2.60 LMM: Bid 40 @ 2.45 Away Market
A: Offer 50 @ 2.60 Away Market B: Bid 40 @ 2.45 Away Market B:
Offer 40 @ 2.60 Order B: Buy 10 @ 2.40 Order F: Sell 10 @ 2.65 Away
Market A: Bid 50 @ 2.40 Away Market C: Offer 30 @ 2.65 Away Market
D: Bid 20 @ 2.40 MM2: Offer 30 @ 2.70 Order C: Buy 10 @ 2.35 Away
Market D: Offer 20 @ 2.70
The process continues to step 808, where it checks if this issue
has any assigned market makers. As it does, the process continues
to step 810, where it checks if incoming Buy Order H is a directed
order or not. As it is not a directed order, the process continues
to step 812, where it initiates the "LMM Guaranteed Offer Process,"
and proceeds to step 1900 in FIG. 19.
LMM Guarantee Process is in Effect for this Issue
In step 1902, the process retrieves the LMM Offer (40 @ 2.60). In
step 1904, it checks if the LMM Offer is at the NBO (2.60). As it
is, the lead market maker is entitled to guaranteed participation
with incoming Buy Order H, after any superior displayed customer
orders are executed first. The process continues to step 1908,
where it checks if incoming Buy Order H's order size (250) is
greater than two contracts. As it is, the process continues to step
1914.
Incoming Reprice-And-Ship Inside Limit Buy Order Matches the
Displayed Sell Order with Time Priority Over the LMM Offer
In step 1914, the process checks if there are any customer sell
orders displayed at the NBO, and finds posted Sell Order D. The
process continues to step 1916, where it stores the timestamp on
the LMM Offer in the parameter "LMMOfferTimestamp." In step 1918,
the process retrieves the earliest displayed customer sell order at
the NBO, Sell Order D, and in step 1920, the process compares the
timestamp of posted Sell Order D to the LMMOfferTimestamp. As
posted Sell Order D was received earlier than the LMM Offer, the
process continues to step 1922, where it matches 10 contracts of
incoming Buy Order H with posted Sell Order D, completely depleting
posted Sell Order D and removing it from the books.
The process continues to step 1924, where it checks if incoming Buy
Order H still has quantity available to trade. As it still has 240
contracts remaining, the process continues to step 1928, where it
checks if there are any additional customer sell orders at the NBO.
As there are none (Sell Order E is not on behalf of a customer),
the process continues to step 1932
Incoming Reprice-And-Ship Inside Limit Buy Order Matches the LMM
Offer
In step 1932, the process retrieves the LMMGuaranteedPercent
parameter, which is configured to 40% in this example. In step
1934, the process derives the LMMGuaranteedAllocation (96
contracts) by multiplying the LMMGuaranteedPercent (40%) by the
remaining portion of incoming Buy Order H (240 contracts). The
LMMGuaranteedAllocation is the maximum quantity of contracts that
can execute in the LMM Guarantee Process.
In step 1938, the process matches 40 contracts of incoming Buy
Order H against the LMM Offer, the lesser of the
LMMGuaranteedAllocation (96 contracts) and the LMM Offer size (40
contracts), at the NBO price of 2.60. It does this by generating an
IOC pseudo-order to Sell 40 @ 2.60 on behalf of the LMM Offer, and
executing incoming Buy Order H against the sell pseudo-order. The
LMM Offer at 2.60 is completely depleted, and is removed from the
virtual consolidated order and quote list. The process notifies the
market maker quote engine 32b to decrement the LMM Offer by the 40
contracts executed. The LMM Guaranteed Offer Process has
completed.
The virtual consolidated order and quote list now looks like
this:
TABLE-US-00036 Bids Offers MM2: Bid 30 @ 2.50 Order E: Sell 10 @
2.60 Order A: Buy 10 @ 2.50 Away Market A: Offer 50 @ 2.60 Away
Market C: Bid 30 @ 2.50 Away Market B: Offer 40 @ 2.60 LMM: Bid 40
@ 2.45 Order F: Sell 10 @ 2.65 Away Market B: Bid 40 @ 2.45 Away
Market C: Offer 30 @ 2.65 Order B: Buy 10 @ 2.40 MM2: Offer 30 @
2.70 Away Market A: Bid 50 @ 2.40 Away Market D: Offer 20 @ 2.70
Away Market D: Bid 20 @ 2.40 Order C: Buy 10 @ 2.35
The market maker quote engine 32b decrements the LMM Offer by the
40 contracts executed, completely depleting it. The market maker
quote book 33a now looks like this (the lead market maker will
manually replenish its offer, but this is not illustrated to
simplify the example):
TABLE-US-00037 Bids Offers MM2: Bid 30 @ 2.50 MM2: Offer 30 @ 2.70
LMM: Bid 40 @ 2.45
The internal order book 29a now looks like this:
TABLE-US-00038 Bids Offers Order A: Buy 10 @ 2.50 Order E: Sell 10
@ 160 Order B: Buy 10 @ 2.40 Order F: Sell 10 @ 2.65 Order C: Buy
10 @ 2.35
The market center 13B0 is now 2.50 to 2.60 (40.times.10)
The public order book looks like this:
TABLE-US-00039 Bids Offers 40 @ 2.50 10 @ 2.60 .rarw. 40 @ 2.45 10
@ 2.65 10 @ 40 30 @ 2.70 10 @ 2.35
The process continues to step 1942, where it checks if incoming Buy
Order H still has any quantity available to trade. As it still has
200 contracts remaining, the process continues to step 1946, where
it returns to the step where the routine was originally invoked,
back to step 812 of FIG. 8A.
Incoming Reprice-And-Ship Inside Limit Buy Order Matches the
Non-Customer Sell Order
The process continues to step 816, where it retrieves the best
offer in the virtual consolidated order and quote list, which is
posted Sell Order E. In step 818, the process checks if incoming
Buy Order H's price (2.65) is greater than or equal to posted Sell
Order E's price (2.60). As incoming Buy Order H's price is higher,
the process continues to step 820, where it checks if posted Sell
Order E's price (2.60) is at the NBO (2.60). As Sell Order E is at
the NBO, the process continues to step 822, where it checks if
posted Sell Order E is on or off the market center 20. As it is a
resident book order, the process bypasses step 826 and continues to
step 828, where it matches 10 contracts of incoming Buy Order H
against posted Sell Order E, at the NBO price of 2.60. Posted Sell
Order E is completely depleted and is removed from the books. The
NBBO is now 2.50 to 2.60 (70.times.90)
The virtual consolidated order and quote list now looks like
this:
TABLE-US-00040 Bids Offers MM2: Bid 30 @ 2.50 Away Market A: Offer
50 @ 2.60 Order A: Buy 10 @ 2.50 Away Market B: Offer 40 @ 2.60
Away Market C: Bid 30 @ 2.50 Order F: Sell 10 @ 2.65 LMM: Bid 40 @
2.45 Away Market C: Offer 30 @ 2.65 Away Market B: Bid 40 @ 2.45
MM2: Offer 30 @ 2.70 Order B: Buy 10 @ 2.40 Away Market D: Offer 20
@ 2.70 Away Market A: Bid 50 @ 2.40 Away Market D: Bid 20 @ 2.40
Order C: Buy 10 @ 2.35
The internal order book 29a now looks like this:
TABLE-US-00041 Bids Offers Order A: Buy 10 @ 2.50 Order F: Sell 10
@ 2.65 Order B: Buy 10 @ 2.40 Order C: Buy 10 @ 2.35
The market center BBO is now 2.50 to 2.65 (40.times.10)
The public order book looks like this:
TABLE-US-00042 Bids Offers 40 @ 2.50 10 @ 2.65 .rarw. 40 @ 2.45 30
@ 2.70 10 @ 2.40 10 @ 2.35
The process bypasses step 830 and continues to step 832, where it
checks if incoming Buy Order H still has any quantity available to
trade. As it still has 190 contracts remaining, the process returns
to step 816 and retrieves the best offer in the virtual
consolidated order and quote list, which is Away Market A's offer.
In step 818, the process checks if incoming Buy Order H's price
(2.65) is greater than or equal to Away Market A's offer (2.60). As
incoming Buy Order H's price is higher, the process continues to
step 820, where it checks if Away Market A's offer (2.60) is at the
NBO (2.60). As it is indeed at the NBO, the process continues to
step 822, where it checks if Away Market A's offer is on or off the
market center 20. As it is an away market quote, the process
continues to step 824.
Incoming Reprice-And-Ship Inside Limit Buy Order Routes to the Best
Away Market Offer
The process continues to step 824, where it allows the Routing
Process to determine the highest-ranking eligible away market at
the NBO. In this example, the Routing Process determines that both
Away Market A and Away Market B are eligible away markets, but Away
Market A has a higher priority for routing. As no prior orders have
been routed to Away Market A in this example, the process satisfies
its full disseminated offer size by routing 50 contracts to Away
Market A, at the NBO price of 2.60.
After routing to Away Market A, the process continues to step 832,
where it checks if incoming Buy Order H has any quantity still
available to trade. As it still has 140 contracts remaining, the
process returns to step 816, where it retrieves the best offer in
the virtual consolidated order and quote list. As Away Market A's
offer has been completely satisfied, the best offer is now Away
Market B's offer. In step 818, the process checks if incoming Buy
Order H's price (2.65) is greater than or equal to Away Market B's
offer (2.60). As incoming Buy Order H's price is higher, the
process continues to step 820, where it checks if Away Market B's
offer (2.60) is at the NBO (2.60). As it is indeed at the NBO, the
process continues to step 822, where it checks if Away Market B's
offer is on or off the market center 20. As it is an away market
quote, the process continues to step 824.
Incoming Reprice-And-Ship Inside Limit Buy Order Routes to the
Next-Best Away Market Offer
The process continues to step 824, where the Routing Process
determines that Away Market B is now eligible for routing. As no
prior orders have been routed to Away Market B in this example, the
process satisfies its full disseminated offer size by routing 40
contracts to Away Market B, at the NBO price of 2.60.
After routing to Away Market B, the process continues to step 832,
where it checks if incoming Buy Order H has any quantity still
available to trade. As it still has 100 contracts remaining, the
process returns to step 816, where it retrieves the best offer in
the virtual consolidated order and quote list, which is posted Sell
Order F. In step 818, the process checks if incoming Buy Order H's
price (2.65) is greater than or equal to posted Sell Order F's
price (2.65). As the prices are equal, the process continues to
step 820, where it checks if posted Sell Order F's price (2.65) is
at the NBO (2.60). As Sell Order F's price is inferior to the NBO,
incoming Buy Order H cannot execute against it, as inside limit
orders can only execute at the NBBO by definition in this
embodiment.
Incoming Reprice-And-Ship Inside Limit Buy Order is Capped at the
NBO Price, and Posted
The process continues to step 834, where it "caps" incoming Buy
Order H, at the NBO price of 2.60. It does this by retaining
incoming Buy Order H's original limit price (2.65) for audit
purposes, but posting it at the NI30 price (2.60) so that it locks,
but does not cross, the NBO. The process continues to step 836,
where it ranks Buy Order H in the Display Order Process of the
internal order book 29a according to its "capped" price of 2.60,
and disseminates Buy Order H to the public order book. The NBBO is
now 2.60 to 2.60 (100.times.90). The market is locked.
The virtual consolidated order and quote list now looks like
this:
TABLE-US-00043 Bids Offers Order H: Buy 100 @ 2.60 .rarw. Away
Offer 50 @ 2.60 Market A: MM2: Bid 30 @ 2.50 Away Offer 40 @ 2.60
Market B: Order A: Buy 10 @ 2.50 Order F: Sell 10 @ 2.65 Away Bid
30 @ 2.50 Away Offer 30 @ 2.65 Market C: Market C: LMM: Bid 40 @
2.45 MM2: Offer 30 @ 2.70 Away Bid 40 @ 2.45 Away Offer 20 @ 2.70
Market B: Market D: Order B: Buy 10 @ 2.40 Away Bid 50 @ 2.40
Market A: Away Bid 20 @ 2.40 Market D: Order C: Buy 10 @ 2.35
The internal order book 29a now looks like this:
TABLE-US-00044 Bids Offers Order H: Buy 100 @ 2.60 .rarw. Order F:
Sell 10 @ 2.65 Order A: Buy 10 @ 2.50 Order B: Buy 10 @ 2.40 Order
C: Buy 10 @ 2.35
The market center BBO is now 2.60 to 2.65 (100.times.10)
The public order book looks like this:
TABLE-US-00045 Bids Offers 100 @ 2.60 .rarw. 10 @ 2.65 40 @ 2.50 30
@ 2.70 40 @ 2.45 10 @ 2.40 10 @ 2.35
Away Market Fills the Routed Order, and the Posted Reprice-And-Ship
Inside Limit Buy Order Ships Again Away Market A fills the 50
contracts routed to it, but does not refresh its offer The NBBO is
still 2.60 to 2.60 (100.times.90). The market is still locked.
As described in step 840, whenever an away market completely fills
an order routed on behalf of a posted reprice-and-ship inside limit
order, the process attempts to route to it again. As Away Market A
completely filled the 50 contracts that were routed to it, the
process checks that Away Market A's offer (2.60) is still at the
NBO (2.60). As it is, the process checks that posted Buy Order H
(2.60) is also still priced at the NBO (2.60). As it is, the
process routes an additional 50 contracts to Away Market A, its
full disseminated offer size, at the NBO price of 2.60. Buy Order H
still has 50 contracts remaining. The NBBO is now 2.60 to 2.60
(50.times.90). The market is still locked.
The virtual consolidated order and quote list now looks like
this:
TABLE-US-00046 Bids Offers Order H: Buy 50 @ 2.60 .rarw. Away Offer
50 @ 2.60 Market A: MM2: Bid 30 @ 2.50 Away Offer 40 @ 2.60 Market
B: Order A: Buy 10 @ 2.50 Order F: Sell 10 @ 2.65 Away Bid 30 @
2.50 Away Offer 30 @ 2.65 Market C: Market C: LMM:- Bid 40 @ 2.45
MM2: Offer 30 @ 2.70 Away Bid 40 @ 2.45 Away Offer 20 @ 2.70 Market
B: Market D: Order B: Buy 10 @ 2.40 Away Bid 50 @ 2.40 Market A:
Away Bid 20 @ 2.40 Market D: Order C: Buy 10 @ 2.35
The internal order book 29a now looks like this:
TABLE-US-00047 Bids Offers Order H: Buy 50 @ 2.60 .rarw. Order F:
Sell 10 @ 2.65 Order A: Buy 10 @ 2.50 Order B: Buy 10 @ 2.40 Order
C: Buy 10 @ 2.35
The market center BBO is now 2.60 to 2.65 (50.times.10)
The public order book now looks like this:
TABLE-US-00048 Bids Offers 50 @ 2.60 .rarw. 10 @ 2.65 40 @ 2.50 30
@ 2.70 40 @ 2.45 10 @ 2.40 10 @ 2.35
Away Market Updates Its Offer Price, Crossing, the Posted
Reprice-And-Ship Inside Limit Buy Order Away Market A changes its
offer, crossing posted Buy Order H The NBBO is now 2.60 to 2.55
(50.times.30). The market is now crossed.
The away market BBO book 25a looks like this:
TABLE-US-00049 Bids Offers Away Bid 30 @ 2.50 Away Offer 30 @ 2.55
.rarw. Market C: Market A: Away Bid 40 @ 2.45 Away Offer 40 @ 2.60
Market B: Market B: Away Bid 50 @ 2.40 Away Offer 30 @ 2.65 Market
A: Market C: Away Bid 20 @ 2.40 Away Offer 20 @ 2.70 Market D:
Market D:
The quote engine 23a notifies the order matching engine 21 of the
change to the NBO and to Away Market A's disseminated offer. As
described in step 838, whenever an away market's offer price
crosses a posted reprice-and-ship inside limit order buy order, the
process reprices the posted reprice-and-ship inside limit order buy
order at the new NBO price. Accordingly, Buy Order H is repriced at
2.55, and loses its standing in the internal order book 29a. Buy
Order H is treated as if it were a new incoming order. The process
returns to step 802, where it retrieves the NBO (2.55) and checks
if Buy Order H is marketable. As it is, the process continues to
step 806, where the order matching engine 21 evaluates its matching
opportunities by combining the away market BBO book 25a, the market
maker quote book 33a, and the internal order book 29a together in a
virtual consolidated order and quote list, which it ranks in
price/display/time priority, but with a preference for resident
interest over away market interest at the same price level.
The virtual consolidated order and quote list looks like this:
TABLE-US-00050 Bids Offers Order H: Buy 50 @ 2.60 Away Offer 30 @
2.55 .rarw. Market A: MM2: Bid 30 @ 2.50 Away Offer 40 @ 2.60
Market B: Order A: Buy 10 @ 2.50 Order F: Sell 10 @ 2.65 Away Bid
30 @ 2.50 Away Offer 30 @ 2.65 Market C: Market C: LMM: Bid 40 @
2.45 MM2: Offer 30 @ 2.70 Away Bid 40 @ 2.45 Away Offer 20 @ 2.70
Market B: Market D: Order B: Buy 10 @ 2.40 Away Bid 50 @ 2.40
Market A: Away Bid 20 @ 2.40 Market D: Order C: Buy 10 @ 2.35
The process continues to step 808, where it checks if this issue
has any assigned market makers. As it does, the process continues
to step 810, where it checks if "incoming" Buy Order H is a
directed order or not. It should be noted that once an order is
posted, it is never treated as a directed order again, even if it
was originally sent as a directed order. As Buy Order H is not a
directed order, the process continues to step 812, to initiate the
"LMM Guaranteed Offer Process." However, as the LMM Offer is not
replenished in any of the examples of this document for ease of
illustration, the process continues to step 816 instead, where it
retrieves Away Market A's offer. As Buy Order H's price is equal to
Away Market A's offer, the process executes steps 818, 820, and 822
as previously described.
In step 824, the process routes 30 contracts to Away Market A, its
full disseminated offer size, at the new NBO price of 2.55. In step
832, the process determines that Buy Order H still has 20 contracts
remaining, and returns to step 816, where it retrieves the best
offer in the virtual consolidated order and quote list, which is
now Away Market B's offer. In step 818, the process checks if Buy
Order H's price (2.55) is greater than or equal to Away Market B's
offer (2.60). As Buy Order H has been repriced lower and can
execute no further, the process continues to step 836, where it
ranks Buy Order E1 in the Display Order Process of the internal
order book 29a according to its new capped price (2.55). It also
disseminates Buy Order H to the public order book at its new capped
price. The NBBO is now 2.55 to 2.55 (20.times.30). The market is
now locked.
The virtual consolidated order and quote list now looks like
this:
TABLE-US-00051 Bids Offers Order H: Buy 20 @ 2.55 .rarw. Away Offer
30 @ 2.55 Market A: MM2: Bid 30 @ 2.50 Away Offer 40 @ 2.60 Market
B: Order A: Buy 10 @ 2.50 Order F: Sell 10 @ 2.65 Away Bid 30 @
2.50 Away Offer 30 @ 2.65 Market C: Market C: LMM: Bid 40 @ 2.45
MM2: Offer 30 @ 2.70 Away Bid 40 @ 2.45 Away Offer 20 @ 2.70 Market
B: Market D: Order B: Buy 10 @ 2.40 Away Bid 50 @ 2.40 Market A:
Away Bid 20 @ 2.40 Market D: Order C: Buy 10 @ 2.35
The internal order book 29a now looks like this:
TABLE-US-00052 Bids Offers Order H: Buy 20 @ 2.55 .rarw. Order F:
Sell 10 @ 2.65 Order A: Buy 10 @ 2.50 Order B: Buy 10 @ 2.40 Order
C: Buy 10 @ 2.35
The market center BBO is now 2.55 to 2.65 (20.times.10)
The public order book now looks like this:
TABLE-US-00053 Bids Offers 20 @ 2.55 .rarw. 10 @ 2.65 40 @ 2.50 30
@ 2.70 40 @ 2.45 10 @ 2.40 10 @ 2.35
Away Market Fills the Routed Order, But the Posted Reprice-And-Ship
Inside Limit Buy Order Cannot Ship to it Again Away Market B fills
the 40 contracts routed to it, but does not refresh its offer The
NBBO is still 2.55 to 2.55 (20.times.30). The market is still
locked.
As described in step 840, whenever an away market completely fills
an order routed on behalf of a posted reprice-and-ship inside limit
order, the process attempts to route to it again. As Away Market B
completely filled the 40 contracts that were routed to it, the
process checks if Away Market B's offer (2.60) is still at the NBO
(2.55). As Away Market B's offer is no longer at the NBO, posted
Buy Order H cannot route additional contracts to Away Market B.
Another Away Market Fills the Routed Order, but the Posted
Reprice-And-Ship Inside Limit Buy Order Cannot Ship to it Again
Away Market A fills the 30 additional contracts routed to it while
contemporaneously fading its offer The NBBO is now 2.55 to 2.60
(20.times.70). The market is no longer locked.
The away market BBO book 25a now looks like this:
TABLE-US-00054 Bids Offers Away Bid 30 @ 2.50 Away Offer 30 @ 2.60
.rarw. Market C: Market A: Away Bid 40 @ 2.45 Away Offer 40 @ 2.60
Market B: Market B: Away Bid 50 @ 2.40 Away Offer 30 @ 2.65 Market
A: Market C: Away Bid 20 @ 2.40 Away Offer 20 @ 2.70 Market D:
Market D:
The quote engine 23a notifies the order matching engine 21 of the
new NBO price. When the order matching engine 21 receives the
notification from the quote engine 23a, it evaluates its matching
opportunities by combining the away market BBO book 25a, the market
maker quote book 33a, and the internal order book 29a together in a
virtual consolidated order and quote list, which it ranks in
price/display/time priority, but with a preference for resident
interest over away market interest at the same price level.
The virtual consolidated order and quote list looks like this:
TABLE-US-00055 Bids Offers Order H: Buy 20 @ 2.55 Away Offer 30 @
2.60 .rarw. Market A: MM2: Bid 30 @ 2.50 Away Offer 40 @ 2.60
Market B: Order A: Buy 10 @ 2.50 Order F: Sell 10 @ 2.65 Away Bid
30 @ 2.50 Away Offer 30 @ 2.65 Market C: Market C: LMM: Bid 40 @
2.45 MM2: Offer 30 @ 2.70 Away Bid 40 @ 2.45 Away Offer 20 @ 2.70
Market B: Market D: Order B: Buy 10 @ 2.40 Away Bid 50 @ 2.40
Market A: Away Bid 20 @ 2.40 Market D: Order C: Buy 10 @ 2.35
As described in step 840, whenever an away market completely fills
an order routed on behalf of a posted reprice-and-ship inside limit
order, the process, attempts to route to it again. As Away Market A
completely filled the 30 contracts that were routed to it, the
process checks that Away Market A's offer (2.60) is still at the
NBO (2.60). As it is, the process checks if posted Buy Order H
(2.55) is also still priced at the NBO (2.60). As posted Buy Order
H is no longer at the NBO, it cannot route to Away Market A. As
posted reprice-and-ship inside limit orders are only repriced less
aggressively, and are not repriced more aggressively, Buy Order H
remains posted at its current price. The virtual consolidated order
and quote list is deleted from local memory.
Stand-Your-Ground Inside Limit Orders
Similar to a reprice-and-ship inside limit order, a
stand-your-ground inside limit order is capped at the inside price,
and will not execute at a price that is inferior to the NBBO.
Accordingly, it can route to away markets only if they are quoting
at the NBBO, and any remaining quantity cannot route to the
next-best price level until all the quotes at the current NBBO are
exhausted. For example, a stand-your-ground inside limit sell order
that is priced at or better than the NBB would execute in the
sequence shown below:
TABLE-US-00056 Bid Side of the Virtual Consolidated Order and Quote
List Price Display Order Routing Point Process Working Order
Process Process Highest 1. Displayed 2. Reserve 3. Passive 4.
Discretionary 5. Tracking 6. Away price orders and order Liquidity
orders that can Liquidity Market (NBB) quotes quantity Orders step
up to the Orders Bids NBB
An incoming stand-your-ground inside limit order that cannot
execute when it is received is immediately posted at its
user-specified limit price. The nonmarketable stand-your-ground
inside limit order is inserted in the internal order book 29a and
ranked according to price/time priority in the Display Order
Process. The order is also disseminated to the public order book.
Posted customer stand-your-ground inside limit orders that are
priced at the NBBO are eligible to execute against incoming
marketable orders in the LMM Guarantee Process or the Directed
Order Process, like any other displayed order type, if they have
time priority over the eligible market maker quote.
An incoming stand-your-ground inside limit order that is marketable
at the opposite side of the NBBO will participate in the LMM
Guarantee Process if the lead market maker is quoting at the
opposite side of the NBBO. Similarly, if the business rules of the
market center 20 allow stand-your-ground inside limit orders to be
directed to a specific market maker, then an incoming
stand-your-ground inside limit order that is executable at the
opposite side of the NBBO will participate in the Directed Order
Process if the designated market maker is quoting at the opposite
side of the NBBO.
Once posted, in this embodiment, the behavior of a
stand-your-ground inside limit order is very different from a
reprice-and-ship inside limit order. Although both order types may
be automatically capped (repriced) to lock, but not cross, the
NBBO, a posted reprice-and-ship inside limit order is only repriced
less aggressively (i.e., when the NBBO moves into it) whereas a
posted stand-your-ground inside limit order is only repriced more
aggressively (i.e., when the NBBO moves away from it). Whereas a
reprice-and-ship inside limit order does not stand its ground when
locked or crossed by an away market 24 and ships to the
locking/crossing away market 24, in contrast, a stand-your-ground
inside limit order stands its ground when locked or crossed and
does not ship. Whereas a reprice-and-ship inside limit order
generally continues to ship additional contracts to an away market
24 as long as fills are received, in contrast, a stand-your-ground
inside limit order only routes when initially locking an away
market 24, and does not route additional contracts when fills are
received.
If a stand-your-ground inside limit order's price would cross the
NBBO if it were to be posted, it is automatically capped at the
opposite side of the NBBO before it is posted, i.e., the order will
lock the market but it will not cross the market. The remaining
portion of the stand-your-ground inside limit order is inserted in
the Display Order Process of the internal order book 29a and is
ranked according to the price/time priority of its current (capped)
displayed price. The order is also disseminated to the public order
book at its current (capped) displayed price. The process stores
the original user-specified price so that the order can
subsequently be repriced more aggressively if the NBBO moves away.
As in this embodiment, the quote engine 23a notifies the order
matching engine 21 whenever a disseminated best bid or offer quote
price touches any order price, whether displayed or not, and this
may increase the processing overhead, stand-your-ground inside
limit orders are subject to the check for excessive marketability
when they are first received to ensure that their original prices
are not too far through the NBBO.
If the NBBO moves away from the posted stand-your-ground inside
limit order so that the market is no longer locked, then the
process removes the cap, and allows the order to revert to its
original user-specified limit price. The repriced order loses its
standing in the internal order book 29a and is processed as if it
were a new incoming order. After the stand-your-ground inside limit
order can execute no further, if its price would still cross the
market if it were to be posted, it is automatically capped at the
opposite side of the new NBBO before it is posted, locking the
market again. This process continues until the stand-your-ground
inside limit order is depleted, or can be displayed at its original
user-specified limit price without crossing the market. Once the
stand-your-ground inside limit order is displayed at its original
user-specified price, it is never capped again.
As described above, the unfilled portion of the stand-your-ground
inside limit order is not routed to the next price level until all
the quotes at the current NBBO are exhausted and the away markets
fade their quotes. This behavior is referred to as "walking the
book," as each price level must be cleared before proceeding to the
next price level. As each price level is cleared, the
stand-your-ground inside limit order can execute at an increasingly
aggressive price.
In a different embodiment, a stand-your-ground inside limit order
re-prices, re-ranks, and executes as described above, except that
the order is not displayed to the marketplace until it becomes
nonmarketable. Accordingly, in this alternative embodiment, the
stand-your-ground inside limit order is queued rather than posted
while it is in the process of "walking the book."
Incoming Stand-Your-Ground Inside Limit Buy Order Received
Process
Referring now to FIGS. 10A-10B, the process is illustrated where
the order matching engine 21 receives an incoming stand-your-ground
inside limit buy order. In this embodiment, an incoming marketable
stand-your-ground inside limit buy order routes to all away markets
at the NI30 and then any remaining portion of the order is capped
(repriced) at the NBO and posted, locking the market. Once posted,
the order neither reprices nor ships if locked or crossed by an
away market quote. If the order has been capped and the NBO
subsequently moves away from the order's capped price, then the cap
is removed and the order is allowed to execute further at the new
inside price.
In step 1002, the process retrieves the NBO, and in step 1004, the
process determines if the incoming stand-your-ground inside limit
buy order is marketable. If the incoming buy order is marketable,
then the process continues to step 1005, where it initiates the
"Too-Executable Buy Order Check Process," and proceeds to step 1600
in FIG. 16. If the incoming buy order is not canceled in the
"Too-Executable Buy Order Check Process," i.e., it is not
determined to be too executable, then the process continues to step
1006, where it creates a virtual consolidated order and quote list
for the option series.
The process continues to step 1008, where it checks if the option
series has any assigned market makers. If it does, then the process
continues to step 1010, where it checks if the incoming
stand-your-ground inside limit buy order is a directed order or
not. If the incoming stand-your-ground inside limit buy order is a
directed order, then the process continues to step 1014 where the
"Directed Order Process" is initiated in step 2000 in FIG. 20A. If,
however, the incoming stand-your-ground inside limit buy order is
not a directed order, then the process proceeds to step 1012 where
the "LMM Guaranteed Offer Process" is initiated instead in step
1900 in FIG. 19.
Regardless of whether the incoming stand-your-ground inside limit
buy order executes in the Directed Order Process, in the LMM
Guaranteed Offer Process, or in neither process (if the applicable
market maker is not quoting at the NBO and is therefore ineligible
for a guaranteed entitlement, or else if the issue does not have
any assigned market makers), if the incoming stand-your-ground
inside limit buy order still has quantity available to trade, then
the process continues to step 1016, where it retrieves the best
offer in the virtual consolidated order and quote list, i.e., the
sell order, market maker quote, or disseminated away market quote
with the highest ranking. In step 1018, the process checks if the
incoming stand-your-ground inside limit buy order is still
marketable (by way of explanation, it is possible that it is no
longer marketable if the quotes and orders at the NBO were
exhausted).
At step 1018, if the process determines that the incoming
stand-your-ground inside limit buy order is still marketable, then
it continues to step 1020, where it checks if the retrieved best
offer is at the NBO. If the retrieved best offer is at the NBO,
then the process continues to step 1022, where it checks if the
retrieved best offer is on or off the market center 20. If the
retrieved best offer is on the market center 20, then the process
continues to step 1026, where if the retrieved best offer is a
market maker quote, the process automatically generates an IOC sell
pseudo-order on behalf of the underlying market maker quote. The
process continues to step 1028, where it matches the incoming
stand-your-ground inside limit buy order against the retrieved sell
order or pseudo-order, at the NBO price. If the matched sell order
is a pseudo-order, then in step 1030, the process notifies the
market maker quote engine 32b of the quantity that was executed so
that the market maker quote engine 32b can decrement the underlying
market maker quote.
The process continues to step 1032, where it checks if the incoming
stand-your-ground inside limit buy order still has quantity
available to trade. If it does not, then the process continues to
step 1046, where it terminates as indicated. If, however, the
incoming stand-your-ground inside limit buy order does still have
remaining quantity, then the process returns to step 1016, where it
retrieves the next-best offer in the virtual consolidated order and
quote list and continues to step 1018, where it checks if the
incoming stand-your-ground inside limit buy order is still
marketable. The process continues to execute the incoming
stand-your-ground inside limit buy order against all resident
trading interest at the NBO as described above, until the incoming
stand-your-ground inside limit buy order is depleted, or else until
the retrieved best offer is an away market quote, as described
next.
Returning to step 1022, if the retrieved best offer is an away
market quote, then the process releases the incoming
stand-your-ground inside limit buy order to the Routing Process,
which routes to the highest-ranking away market as appropriate, up
to its disseminated offer size, at the NBO price. After routing to
the away market, the process continues to step 1032, where it
checks if the incoming stand-your-ground inside limit buy order
still has quantity available to trade. If the order is depleted,
then the process terminates in step 1046 as indicated. If, however,
the order still has remaining quantity, then it returns to step
1016, where it retrieves the next best offer, and if the next best
offer is also at the NBO, will proceed to route to the next-highest
ranked away market quote as just described. The process repeats
these steps until the incoming buy order is depleted, or until the
retrieved best offer is no longer at the NBO, as described
next.
Returning to step 1020, if however, the retrieved best offer is
inferior to the N130, then the incoming buy order can execute no
further at the present time, and the remaining quantity must be
posted. The process continues to step 1040, where it caps the
incoming stand-your-ground inside limit buy order at the NBO so
that it locks, but does not cross, the market. In step 1042, the
process ranks the capped stand-your-ground inside limit buy order
in the Display Order Process of the internal order book 29a
according to the price/time priority of its capped (NBO) price. The
process also disseminates the order to the public order book at its
capped (NBO) price.
Continuing to step 1044, if the NBO price should move higher than
the posted stand-your-ground inside limit buy order's displayed
price so that the market is no longer locked, then the process
removes the cap, allows the stand-your-ground inside limit buy
order to revert to its original user-specified limit price, and
processes it as if it were a new incoming order. Accordingly, the
process returns to step 1002, and the repriced stand-your-ground
inside limit buy order is allowed to execute further at its more
aggressive price if the order has executed all interest at the new
NBO but still has quantity remaining, then at step 1040, the
process caps the order at the new NBO price, and posts it again at
step 1042. This process is repeated until the stand-your-ground
inside limit buy order is depleted, or else until the NBO moves
away to the extent to which the order can be displayed at its
original user-specified price without crossing the market. Once the
order is displayed at its original user-specified limit price, it
is never capped again. The process then terminates in step 1046 as
indicated.
Returning to step 1004, if, however, the incoming stand-your-ground
inside limit buy order was never marketable, then the process
continues to step 1034, where it ranks the order at its
user-specified price in the Display Order Process of the internal
order book 29a according to price/time priority, and disseminates
the order to the public order book. As the nonmarketable order is
ranked at its original limit price, it is not affected when the NBO
changes. The process then terminates in step 1036 as indicated.
Returning to step 1018, if, however, the incoming stand-your-ground
inside limit buy order is no longer marketable, then the process
continues to step 1034 and 1036 as just described.
Incoming Stand-Your-Ground Inside Limit Sell Order Received
Process
Referring now to FIGS. 11A-11B, the process is illustrated where
the order matching engine 21 receives an incoming stand-your-ground
inside limit sell order. This routine is very similar to the
process described above in FIGS. 10A-10B for receiving an incoming
stand-your-ground inside limit buy order.
In step 1102, the process retrieves the NBB, and in step 1104, the
process determines if the incoming stand-your-ground inside limit
sell order is marketable. If the incoming sell order is marketable,
then the process continues to step 1105, initiates the
"Too-Executable Sell Order Check Process," and proceeds to step
1700 in FIG. 17. If the incoming sell order is not canceled in the
Too-Executable Sell Order Check Process, i.e., it is not determined
to be too executable, then the process continues to step 1106,
where it creates a virtual consolidated order and quote list for
the option series.
The process continues to step 1108, where it checks if the option
series has any assigned market makers. If it does, then the process
continues to step 1110, where it checks if the incoming
stand-your-ground inside limit sell order is a directed order or
not. If the incoming stand-your-ground inside limit sell order is a
directed order, then the process continues to step 1114 where the
"Directed Order Process" is initiated in step 2000 in FIG. 20A. If,
however, the incoming stand-your-ground inside limit sell order is
not a directed order, then the process proceeds to step 1112 where
the "LMM Guaranteed Bid Process" is initiated instead in step 1800
in FIG. 18.
Regardless of whether the incoming stand-your-ground inside limit
sell order executes in the Directed Order Process, in the LMM
Guaranteed Bid Process, or in neither process (if the applicable
market maker is not quoting at the NBB and is therefore ineligible
for a guaranteed entitlement, or else if the issue does not have
any assigned market makers), if the incoming stand-your-ground
inside limit sell order still has quantity available to trade, then
the process continues to step 1116, where it retrieves the best bid
in the virtual consolidated order and quote list, i.e., the buy
order, market maker quote, or disseminated away market quote with
the highest ranking. In step 1118, the process checks if the
incoming stand-your-ground inside limit sell order is still
marketable (by way of explanation, it is possible that it is no
longer marketable if the quotes and orders at the NBB were
exhausted).
At step 1118, if the process determines that the incoming
stand-your-ground inside limit sell order is still marketable, then
it continues to step 1120, where it checks if the retrieved best
bid is at the NBB. If the retrieved best bid is at the NBB, then
the process continues to step 1122, where it checks if the
retrieved best bid is on or off the market center 20. If the
retrieved best bid is on the market center 20, then the process
continues to step 1126, where if the retrieved best bid is a market
maker quote, the process automatically generates an IOC buy
pseudo-order on behalf of the underlying market maker quote. The
process continues to step 1128, where it matches the incoming
stand-your-ground inside limit sell order against the retrieved buy
order or pseudo-order, at the NBB price. If the matched buy order
is a pseudo-order, then in step 1130, the process notifies the
market maker quote engine 32b of the quantity that was executed so
that the market maker quote engine 32b can decrement the underlying
market maker quote.
The process continues to step 1132, where it checks if the incoming
stand-your-ground inside limit sell order still has quantity
available to trade. If it does not, then the process continues to
step 1146, where it terminates as indicated. If, however, the
incoming stand-your-ground inside limit sell order does still have
remaining quantity, then the process returns to step 1116, where it
retrieves the next-best bid in the virtual consolidated order and
quote list and continues to step 1118, where it checks if the
incoming stand-your-ground inside limit sell order is still
marketable. The process continues to execute the incoming
stand-your-ground inside limit sell order against all resident
trading interest at the NBB as described above, until the incoming
stand-your-ground inside limit sell order is depleted, or else
until the retrieved best bid is an away market quote, as described
next.
Returning to step 1122, if the retrieved best bid is an away market
quote, then the process releases the incoming stand-your-ground
inside limit sell order to the Routing Process, which routes to the
highest-ranking away market as appropriate, up to its disseminated
Bid size, at the NBB price. After routing to the away market, the
process continues to step 1132, where it checks if the incoming
stand-your-ground inside limit sell order still has quantity
available to trade. If the order is depleted, then the process
terminates in step 1146 as indicated. If, however, the order still
has remaining quantity, then it returns to step 1116, where it
retrieves the next best bid, and if the next best bid is also at
the NBB, will proceed to route to the next-highest ranked away
market quote as just described. The process repeats these steps
until the incoming sell order is depleted, or until the retrieved
best bid is no longer at the NBB, as described next.
Returning to step 1120, if, however, the retrieved best bid is
inferior to the NBB, then the incoming sell order can execute no
further at the present time, and the remaining quantity must be
posted. The process continues to step 1140, where it caps the
incoming stand-your-ground inside limit sell order at the NBB so
that it locks, but does not cross, the market. In step 1142, the
process ranks the capped stand-your-ground inside limit sell order
in the Display Order Process of the internal order book 29a
according to the price/time priority of its capped (NBB) price. The
process also disseminates the order to the public order book at its
capped (NBB) price.
Continuing to step 1144, if the NBB price should move lower than
the posted stand-your-ground inside limit sell order's displayed
price so that the market is no longer locked, then the process
removes the cap, allows the stand-your-ground inside limit sell
order to revert to its original user-specified limit price, and
processes it as if it were a new incoming order. Accordingly, the
process returns to step 1102, and the repriced stand-your-ground
inside limit sell order is allowed to execute further at its more
aggressive price if the order has executed all interest at the new
NBB but still has quantity remaining, then at step 1140, the
process caps the order at the new NBB price, and posts it again at
step 1142. This process is repeated until the stand-your-ground
inside limit sell order is depleted, or else until the NBB moves
away to the extent to which the order can be displayed at its
original user-specified price without crossing the market. Once the
order is displayed at its original user-specified limit price, it
is never capped again. The process then terminates in step 1146 as
indicated.
Returning to step 1104, if, however, the incoming stand-your-ground
inside limit sell order was never marketable, then the process
continues to step 1134, where it ranks the order at its
user-specified price in the Display Order Process of the internal
order book 29a according to price/time priority, and disseminates
the order to the public order book. As the nonmarketable order is
ranked at its original limit price, it is not affected when the NBB
changes. The process then terminates in step 1136 as indicated.
Returning to step 1118, if, however, the incoming stand-your-ground
inside limit sell order is no longer marketable, then the process
continues to step 1134 and 1136 as just described.
Stand-Your-Ground Inside Limit Order Trading Example
In this example, the issue has an assigned lead market maker (LMM)
that is quoting at the NBO when a marketable incoming
stand-your-ground inside limit buy order is received. The
stand-your-ground inside limit buy order executes in the LMM
Guaranteed Offer Process and the Display Order Process and then
routes to the away markets at the NBO. After routing at the NBO,
the order is repriced less aggressively so that it locks, but does
not cross, the NBO. When the away markets fill the order routed to
it, the posted stand-your-ground inside limit order does not route
additional quantity to them. When an away market updates its offer
price and the new offer price crosses the price of the posted
stand-your-ground inside limit order, the order is not repriced and
does not route. When the NBO moves away from the posted
stand-your-ground inside limit order, the order reverts to its
user-specified price, routes again, and is automatically repriced
and posted at the new, more aggressive NBO price. The NBBO is 2.50
to 2.60 (70.times.150).
The away market BBO book 25a looks like this:
TABLE-US-00057 Bids Offers Away Market C: Bid 30 @ 2.50 Away Market
A: Offer 50 @ 2.60 Away Market B: Bid 40 @ 2.45 Away Market B:
Offer 40 @ 2.60 Away Market A: Bid 50 @ 2.40 Away Market C: Offer
30 @ 2.65 Away Market D: Bid 20 @ 2.40 Away Market D: Offer 20 @
2.70
The market maker quote book 33a looks like this:
TABLE-US-00058 Bids Offers MM2: Bid 30 @ 2.50 LMM: Offer 40 @ 2.60
LMM: Bid 40 @ 2.45 MM2: Offer 30 @ 2.70
The internal order book 29a looks like this. Order D is on behalf
of a customer, whereas Order E is not:
TABLE-US-00059 Bids Offers Order A: Buy 10 @ 2.50 Order D: Sell 10
@ 2.60 Order B: Buy 10 @ 2.40 Order E: Sell 10 @ 2.60 Order C: Buy
10 @ 2.35 Order F: Sell 10 @ 2.65
The market center BBO is 2.50 to 2.60 (40.times.60)
The public order book looks like this:
TABLE-US-00060 Bids Offers 40 @ 2.50 60 @ 2.60 40 @ 2.45 10 @ 2.65
10 @ 2.40 30 @ 2.70 10 @ 2.35
Incoming Marketable Stand-Your-Ground Inside Limit Buy Order is
Received
In step 1000, the order matching engine 21 receives the following
order: Order I: Buy 250 @ 2.70, Stand-your-Ground Inside Limit In
step 1002, the process retrieves the NBO (2.60). In step 1004, the
process checks if incoming Buy Order I is marketable, i.e., is
priced at or better than the NBO. As it is, the process continues
to step 1005, where initiates the "Too-Executable Buy Order Check
Process," and proceeds to step 1600 in FIG. 16.
In step 1602, the process checks if incoming Buy Order 1's price
(2.70) is higher than the NBO (2.60). As it is, the process
continues to step 1604, where it checks if stand-your-ground inside
limit orders should be checked for excessive marketability. As the
check for excessive marketability is enabled for this order type in
this embodiment, the process continues to step 1608, where it
retrieves the "MaxPercentOffNBBO" parameter, which is configured to
15% in this example. It should be noted that the minimum price
increment (tick) for this issue is 0.05. In step 1610, the process
computes the MaxPriceThruNBO by multiplying the NBO (2.60) by the
MaxPercentOffNBBO (15%), deriving the MaxPriceThruNBO=0.35 (15% of
2.60=0.39, rounded down to 0.35, the nearest tick). In step 1612,
the process computes the MaxBuyPrice by adding the derived
MaxPriceThruNBO (0.35) to the NBO (2.60), deriving the MaxBuyPrice
of 2.95 (2.60+0.35=2.95). Accordingly, the highest price allowable
for incoming Buy Order I is 2.95. The process continues to step
1614, where it checks if incoming Buy Order 1's price (2.70) is
higher than the MaxBuyPrice (2.95). As it is not higher, incoming
Buy Order I does not need to be repriced or canceled, and the
process continues to step 1616, where it returns to the step where
it was originally invoked, back to step 1005.
The process continues to 1006, where it creates a virtual
consolidated order and quote list. In this example, Sell Orders D
and E were received before the LMM Offer was quoted.
The virtual consolidated order and quote list looks like this:
TABLE-US-00061 Bids Offers MM2: Bid 30 @ 2.50 Order D: Sell 10 @
2.60 Order A: Buy 10 @ 2.50 Order E: Sell 10 @ 2.60 Away Market C:
Bid 30 @ 2.50 LMM: Offer 40 @ 2.60 LMM: Bid 40 @ 2.45 Away Market
A: Offer 50 @ 2.60 Away Market B: Bid 40 @ 2.45 Away Market B:
Offer 40 @ 2.60 Order B: Buy 10 @ 2.40 Order F: Sell 10 @ 2.65 Away
Market A: Bid 50 @ 2.40 Away Market C: Offer 30 @ 2.65 Away Market
D: Bid 20 @ 2.40 MM2: Offer 30 @ 2.70 Order C: Buy 10 @ 2.35 Away
Market D: Offer 20 @ 2.70
The process continues to step 1008, where it checks if this issue
has any assigned market makers. As it does, the process continues
to step 1010, where it checks if incoming Buy Order I is a directed
order or not. As it is not a directed order, the process continues
to step 1012, where it initiates the "LMM Guaranteed Offer
Process," and proceeds to step 1900 in FIG. 19.
LMM Guarantee Process is in Effect for this Issue
In step 1902, the process retrieves the LMM Offer (40 @ 2.60). In
step 1904, it checks if the LMM Offer is at the NBO (2.60). As it
is, the lead market maker is entitled to guaranteed participation
with incoming Buy Order I, after any superior displayed customer
orders are executed first. The process continues to step 1908,
where it checks if incoming Buy Order I's order size (250) is
greater than two contracts. As it is, the process continues to step
1914.
Incoming Stand-Your-Ground Inside Limit Buy Order Matches the
Displayed Customer Sell Order with Time Priority Over the LMM
Offer
In step 1914, the process checks if there are any customer sell
orders displayed at the NBO, and finds posted Sell Order D. The
process continues to step 1916, where it stores the timestamp on
the LMM Offer in the parameter "LMMOfferTimestamp." In step 1918,
the process retrieves the earliest displayed customer sell order at
the NBO, Sell Order D, and in step 1920, the process compares the
timestamp of posted Sell Order D to the LMMOfferTimestamp. As
posted Sell Order D was received earlier than the LMM Offer, the
process continues to step 1922, where it matches 10 contracts of
incoming Buy Order I with posted Sell Order D, completely depleting
posted Sell Order D and removing it from the books.
The process continues to step 1924, where it checks if incoming Buy
Order I still has quantity available to trade. As it still has 240
contracts remaining, the process continues to step 1928, where it
checks if there are any additional customer sell orders at the NBO.
As there are none (Sell Order E is not on behalf of a customer),
the process continues to step 1932.
Incoming Stand-Your-Ground Inside Limit Buy Order Matches the LMM
Offer
In step 1932, the process retrieves the LMMGuaranteedPercent
parameter, which is configured to 40% in this example. In step
1934, the process derives the LMMGuaranteedAllocation (96
contracts) by multiplying the LMMGuaranteedPercent (40%) by the
remaining portion of incoming Buy Order I (240 contracts). The
LMMGuaranteedAllocation is the maximum quantity of contracts that
can execute in the LMM Guarantee Process.
In step 1938, the process matches 40 contracts of incoming Buy
Order I against the LMM Offer, the lesser of the
LMMGuaranteedAllocation (96 contracts) and the LMM Offer size (40
contracts), at the NBO price of 2.60. It does this by generating an
IOC pseudo-order to Sell 40 @ 2.60 on behalf of the LMM Offer, and
executing incoming Buy Order I against the sell pseudo-order. The
LMM Offer at 2.60 is completely depleted, and is removed from the
virtual consolidated order and quote list. The process notifies the
market maker quote engine 32b to decrement the LMM Offer by the 40
contracts executed. The LMM Guaranteed Offer Process has
completed.
The virtual consolidated order and quote list now looks like
this:
TABLE-US-00062 Bids Offers MM2: Bid 30 @ 2.50 Order E: Sell 10 @
2.60 Order A: Buy 10 @ 2.50 Away Market A: Offer 50 @ 2.60 Away
Market C: Bid 30 @ 2.50 Away Market B: Offer 40 @ 2.60 LMM: Bid 40
@ 2.45 Order F: Sell 10 @ 2.65 Away Market B: Bid 40 @ 2.45 Away
Market C: Offer 30 @ 2.65 Order B: Buy 10 @ 2.40 MM2: Offer 30 @
2.70 Away Market A: Bid 50 @ 2.40 Away Market D: Offer 20 @ 2.70
Away Market D: Bid 20 @ 2.40 Order C: Buy 10 @ 2.35
The market maker quote engine 32b decrements the LMM Offer by the
40 contracts executed, completely depleting it. The market maker
quote book 33a now looks like this (the lead market maker will
manually replenish its offer, but this is not illustrated to
simplify the example):
TABLE-US-00063 Bids Offers MM2: Bid 30 @ 2.50 MM2: Offer 30 @ 2.70
LMM: Bid 40 @ 2.45
The internal order book 29a now looks like this:
TABLE-US-00064 Bids Offers Order A: Buy 10 @ 2.50 Order E: Sell 10
@ 2.60 Order B: Buy 10 @ 2.40 Order F: Sell 10 @ 2.65 Order C: Buy
10 @ 2.35
The market center BBO is now 2.50 to 2.60 (40.times.10) 1003021
The public order book looks like this:
TABLE-US-00065 Bids Offers 40 @ 2.50 10 @ 2.60 .rarw. 40 @ 2.45 10
@ 2.65 10 @ 2.40 30 @ 2.70 10 @ 2.35
The process continues to step 1942, where it checks if incoming Buy
Order I still has any quantity available to trade. As it still has
200 contracts remaining, the process continues to step 1946, where
it returns to the step where the routine was originally invoked,
back to step 1012 of FIG. 10A.
Incoming Stand-Your-Ground Inside Limit Buy Order Matches the
Non-Customer Sell Order
The process continues to step 1016, where it retrieves the best
offer in the virtual consolidated order and quote list, which is
posted Sell Order E. In step 1018, the process checks if incoming
Buy Order I's price (2.70) is greater than or equal to posted Sell
Order E's price (2.60). As incoming Buy Order I's price is higher,
the process continues to step 1020, where it checks if posted Sell
Order E's price (2.60) is at the NBO (2.60). As Sell Order E is at
the NBO, the process continues to step 1022, where it checks if
posted Sell Order E is on or off the market center 20. As it is a
resident book order, the process bypasses step 1026 and continues
to step 1028, where it matches 10 contracts of incoming Buy Order I
against posted Sell Order E, at the NBO price of 2.60. Posted Sell
Order E is completely depleted and is removed from the books. The
NBBO is now 2.50 to 2.60 (70.times.90)
The virtual consolidated order and quote list now looks like
this:
TABLE-US-00066 Bids Offers MM2: Bid 30 @ 2.50 Away Market A: Offer
50 @ 2.60 Order A: Buy 10 @ 2.50 Away Market B: Offer 40 @ 2.60
Away Market C: Bid 30 @ 2.50 Order F: Sell 10 @ 2.65 LMM: Bid 40 @
2.45 Away Market C: Offer 30 @ 2.65 Away Market B: Bid 40 @ 2.45
MM2: Offer 30 @ 2.70 Order B: Buy 10 @ 2.40 Away Market D: Offer 20
@ 2.70 Away Market A: Bid 50 @ 2.40 Away Market D: Bid 20 @ 2.40
Order C: Buy 10 @ 2.35
The internal order book 29a now looks like this:
TABLE-US-00067 Bids Offers Order A: Buy 10 @ 2.50 Order F: Sell 10
@ 2.65 Order B: Buy 10 @ 2.40 Order C: Buy 10 @ 2.35
The market center BBO is now 2.50 to 2.65 (40.times.10)
The public order book looks like this:
TABLE-US-00068 Bids Offers 40 @ 2.50 10 @ 2.65 .rarw. 40 @ 2.45 30
@ 2.70 10 @ 2.40 10 @ 2.35
The process bypasses step 1030 and continues to step 1032, where it
checks if incoming Buy Order 1 still has any quantity available to
trade. As it still has 190 contracts remaining, the process returns
to step 1016 and retrieves the best offer in the virtual
consolidated order and quote list, which is Away Market A's offer.
In step 1018, the process checks if incoming Buy Order I's price
(2.70) is greater than or equal to Away Market A's offer (2.60). As
incoming Buy Order I's price is higher, the process continues to
step 1020, where it checks if Away Market A's offer (2.60) is at
the NBO (2.60). As it is indeed at the NBO, the process continues
to step 1022, where it checks if Away Market A's offer is on or off
the market center 20. As it is an away market quote, the process
continues to step 1024.
Incoming Stand-Your-Ground Inside Limit Buy Order Routes to the
Best Away Market Offer
The process continues to step 1024, where it allows the Routing
Process to determine the highest-ranking eligible away market at
the NBO. In this example, the Routing Process determines that both
Away Market A and Away Market B are eligible away markets, but Away
Market A has a higher priority for routing. As no prior orders have
been routed to Away Market A in this example, the process satisfies
its full disseminated offer size by routing 50 contracts to Away
Market A, at the NBO price of 2.60.
After routing to Away Market A, the process continues to step 1032,
where it checks if incoming Buy Order I has any quantity still
available to trade. As it still has 140 contracts remaining, the
process returns to step 1016, where it retrieves the best offer in
the virtual consolidated order and quote list. As Away Market A's
offer has been completely satisfied, the best offer is now Away
Market B's offer. In step 1018, the process checks if incoming Buy
Order I's price (2.70) is greater than or equal to Away Market B's
offer (2.60). As incoming Buy Order I's price is higher, the
process continues to step 1020, where it checks if Away Market B's
offer (2.60) is at the NBO (2.60). As it is indeed at the NBO, the
process continues to step 1022, where it checks if Away Market B's
offer is on or off the market center 20. As it is an away market
quote, the process continues to step 1024.
Incoming Stand-Your-Ground Inside Limit Buy Order Routes to the
Next-Best Away Market Offer
The process continues to step 1024, where the Routing Process
determines that Away Market B is now eligible for routing. As no
prior orders have been routed to Away Market B in this example, the
process satisfies its full disseminated offer size by routing 40
contracts to Away Market B, at the NBO price of 2.60.
After routing to Away Market B, the process continues to step 1032,
where it checks if incoming Buy Order I has any quantity still
available to trade. As it still has 100 contracts remaining, the
process returns to step 1016, where it retrieves the best offer in
the virtual consolidated order and quote list, which is posted Sell
Order F. In step 1018, the process checks if incoming Buy Order I's
price (2.70) is greater than or equal to posted Sell Order F's
price (2.65). As incoming Buy Order I's price is higher, the
process continues to step 1020, where it checks if posted Sell
Order F's price (2.65) is at the NBO (2.60). As Sell Order F's
price is inferior to the NBO, incoming Buy Order I cannot execute
against it, as inside limit orders can only execute at the NBBO by
definition in this embodiment.
Incoming Stand-Your-Ground Inside Limit Buy Order is Capped at the
NBO and Posted
The process continues to step 1040, where it "caps" incoming Buy
Order I, at the NBO price of 2.60. It does this by retaining
incoming Buy Order I's original limit price (2.70), but posting it
at the NBO price (2.60) so that it locks, but does not cross, the
NBO. The process continues to step 1042, where it ranks Buy Order I
in the Display Order Process of the internal order book 29a
according to its "capped" price of 2.60, and disseminates Buy Order
I to the public order book. The NBBO is now 2.60 to 2.60
(100.times.90). The market is locked.
The virtual consolidated order and quote list now looks like
this:
TABLE-US-00069 Bids Offers Order I: Buy 100 @ 2.60 .rarw. Away
Offer 50 @ 2.60 Original price = 2.70 Market A: MM2: Bid 30 @ 2.50
Away Offer 40 @ 2.60 Market B: Order A: Buy 10 @ 2.50 Order F: Sell
10 @ 2.65 Away Bid 30 @ 2.50 Away Offer 30 @ 2.65 Market C: Market
C: LMM: Bid 40 @ 2.45 MM2: Offer 30 @ 2.70 Away Bid 40 @ 2.45 Away
Offer 20 @ 2.70 Market B: Market D: Order B: Buy 10 @ 2.40 Away Bid
50 @ 2.40 Market A: Away Bid 20 @ 2.40 Market D: Order C: Buy 10 @
2.35
The internal order book 29a now looks like this:
TABLE-US-00070 Bids Offers Order I: Buy 100 @ 2.60 .rarw. Order F:
Sell 10 @ 2.65 Original price = 2.70 Order A: Buy 10 @ 2.50 Order
B: Buy 10 @ 2.40 Order C: Buy 10 @ 2.35
The market center BBO is now 2.60 to 2.65 (100.times.10)
The public order book looks like this:
TABLE-US-00071 Bids Offers 100 @ 2.60 .rarw. 10 @ 2.65 40 @ 2.50 30
@ 2.70 40 @ 2.45 10 @ 2.40 10 @ 2.35
Away Markets Fill the Routed Orders But the Posted
Stand-Your-Ground Inside Limit Buy Order Does Not Ship Additional
Quantity Away Market A fills the 50 contracts routed to it
Unlike a reprice-and-ship inside limit order, which routes to an
away market that fills it so long as the away market and the posted
order are both still at the NBBO, in this embodiment, a
stand-your-ground inside limit order does NOT ship additional
contracts to an away market in response to a fill. Accordingly,
posted Buy Order I does not ship to Away Market A. Away Market B
fills the 40 contracts routed to it
Just as posted Buy Order I did not ship to Away Market A, neither
does it ship to Away Market B.
Away Market Fades its Offer Price, but the NBO Price Remains
Unchanged
Away Market A fades its offer from the NBO The NBBO is now 2.60 to
2.60 (100.times.40). The market is still locked.
The away market BBO book 25a looks like this:
TABLE-US-00072 Bids Offers Away Bid 30 @ 2.50 Away Offer 40 @ 2.60
Market C: Market B: Away Bid 40 @ 2.45 Away Offer 30 @ 2.65 Market
B: Market C: Away Bid 50 @ 2.40 Away Offer 30 @ 2.65 .rarw. Market
A: Market A: Away Bid 20 @ 2.40 Away Offer 20 @ 2.70 Market D:
Market D:
The quote engine 23a notifies the order matching engine 21 of the
change to Away Market A's offer price. As the NBO price is still
2.60, posted Buy Order I is not affected by Away Market A's new
offer, as it only reduces the size at the current NBO price of
2.60.
Second Away Market Fades Its Offer Price and the NBO Moves Away
From the Capped Stand-Your-Ground Inside Limit Buy Order
Away Market B fades its offer from the NBO The NBBO is now 2.60 to
2.65 (100.times.90). The market is no longer locked.
The away market BBO book 25a looks like this:
TABLE-US-00073 Bids Offers Away Bid 30 @ 2.50 Away Offer 30 @ 2.65
Market C: Market C: Away Bid 40 @ 2.45 Away Offer 30 @ 2.65 Market
B: Market A: Away Bid 50 @ 2.40 Away Offer 20 @ 2.65 .rarw. Market
A: Market B: Away Bid 20 @ 2.40 Away Offer 20 @ 2.70 Market D:
Market D:
The quote engine 23a notifies the order matching engine 21 of the
change to Away Market B's offer price, and the change to the NBO
price. As described in step 1044, as the NBO price has moved higher
(it was previously 2.60, but is now 2.65), the process removes the
cap from posted Buy Order I, allowing it to revert to its original
order price of 2.70, and processes it as if it were a new incoming
order, removing it from the books.
Posted Stand-Your-Ground Inside Limit Buy Order's Cap is Removed,
and the Remaining Quantity is Processed Like a New Incoming
Order
In step 1002, the process retrieves the NBO (2.65). In step 1004,
it checks if "incoming" Buy Order 1's price (2.70, its original
price) is marketable, i.e., is at or better than the NBO (2.65). As
it is, the process continues to step 1005, where it initiates the
"Too-Executable Buy Order Check Process," and proceeds to step 1600
in FIG. 16. Buy Order I is not "too executable," as the MaxBuyPrice
is now 3.00 (NBO price of 2.65+0.35=3.00) The process then
continues to step 1006, where it combines the away market BBO book
25a, the market maker quote book 33a, and the internal order book
29a together in a virtual consolidated order and quote list, which
it ranks in price/display/time priority, but with a preference for
resident interest over away market interest at the same price
level.
The virtual consolidated order and quote list looks like this:
TABLE-US-00074 Bids Offers MM2: Bid 30 @ 2.50 Order F: Sell 10 @
2.65 Order A: Buy 10 @ 2.50 Away Market C: Offer 30 @ 2.65 Away
Market C: Bid 30 @ 2.50 Away Market A: Offer 30 @ 2.65 LMM: Bid 40
@ 2.45 Away Market B: Offer 20 @ 2.65 Away Market B: Bid 40 @ 2.45
MM2: Offer 30 @ 2.70 Order B: Buy 10 @ 2.40 Away Market D: Offer 20
@ 2.70 Away Market A: Bid 50 @ 2.40 Away Market D: Bid 20 @ 2.40
Order C: Buy 10 @ 2.35
The process continues to step 1008, where it checks if this issue
has any assigned market makers. As it does, the process continues
to step 1010, where it checks if "incoming" Buy Order I is a
directed order or not. It should be noted that once an order is
posted, it is never treated as a directed order again, even if it
was originally sent as a directed order. As Buy Order I is not a
directed order, the process continues to step 1012, to initiate the
"LMM Guaranteed Offer Process." However, as the LMM Offer is not
replenished in any of the examples of this document for ease of
illustration, the process continues to step 1016 instead.
Uncapped Stand-Your-Ground Inside Limit Buy Order Matches Posted
Sell Order
In step 1016, the process retrieves the best offer in the virtual
consolidated order and quote list, which is posted Sell Order F. In
step 1018, the process checks if "incoming" Buy Order 1's price
(2.70) is greater than or equal to posted Sell Order F's price
(2.65). As Buy Order I's price is higher, the process continues to
step 1020, where it checks if posted Sell Order F's price (2.65) is
at the NBO (2.65). As Sell Order F is at the NBO, the process
continues to step 1022, where it checks if posted Sell Order F is
on or off the market center 20. As it is a resident book order, the
process bypasses step 1026 and continues to step 1028, where it
matches 10 contracts of Buy Order I against posted Sell Order F, at
the NBO price of 2.65. Posted Sell Order F is completely depleted
and is removed from the books. The NBBO is now 2.50 to 2.65
(70.times.80)
The virtual consolidated order and quote list now looks like
this:
TABLE-US-00075 Bids Offers MM2: Bid 30 @ 2.50 Away Market C: Offer
30 @ 2.65 Order A: Buy 10 @ 2.50 Away Market A: Offer 30 @ 2.65
Away Market C: Bid 30 @ 2.50 Away Market B: Offer 20 @ 2.65 LMM:
Bid 40 @ 2.45 MM2: Offer 30 @ 2.70 Away Market B: Bid 40 @ 2.45
Away Market D: Offer 20 @ 2.70 Order B: Buy 10 @ 2.40 Away Market
A: Bid 50 @ 2.40 Away Market D: Bid 20 @ 2.40 Order C: Buy 10 @
2.35
The internal order book 29a now looks like this:
TABLE-US-00076 Bids Offers Order A: Buy 10 @ 2.50 Order B: Buy 10 @
2.40 Order C: Buy 10 @ 2.35
The market center BBO is now 2.50 to 2.70 (40.times.30)
The public order book looks like this:
TABLE-US-00077 Bids Offers 40 @ 2.50 30 @ 2.70 40 @ 2.45 10 @ 2.40
10 @ 2.35
The process bypasses step 1030 and continues to step 1032, where it
checks if incoming Buy Order I still has any quantity available to
trade. As it still has 90 contracts remaining, the process returns
to step 1016 and retrieves the best offer in the virtual
consolidated order and quote list, which is Away Market C's offer.
In step 1018, the process checks if incoming Buy Order I's price
(2.70) is greater than or equal to Away Market C's offer (2.65). As
incoming Buy Order I's price is higher, the process continues to
step 1020, where it checks if Away Market C's offer (2.65) is at
the NBO (2.65). As it is indeed at the NBO, the process continues
to step 1022, where it checks if Away Market C's offer is on or off
the market center 20. As it is an away market quote, the process
continues to step 1024.
Uncapped Stand-Your-Ground Inside Limit Buy Order Routes to the
Best Away Market Offer
The process continues to step 1024, where it allows the Routing
Process to determine the highest-ranking eligible away market at
the NBO. In this example, the Routing Process determines that Away
Markets A, B, and C are eligible away markets, but Away Market C
has the highest priority for routing, Away Market A has the
second-highest priority for routing, and Away Market B has the
third-highest priority for routing. As no prior orders have been
routed to Away Market C in this example, the process satisfies its
full disseminated offer size by routing 30 contracts to Away Market
C, at the NBO price of 2.65.
After routing to Away Market C, the process continues to step 1032,
where it checks if incoming Buy Order I has any quantity still
available to trade. As it still has 60 contracts remaining, the
process returns to step 1016, where it retrieves the best offer in
the virtual consolidated order and quote list. As Away Market C's
offer has been completely satisfied, the best offer is now Away
Market A's offer. In step 1018, the process checks if incoming Buy
Order 1's price (2.70) is greater than or equal to Away Market A's
offer (2.65). As Buy Order I's price is higher, the process
continues to step 1020, where it checks if Away Market A's offer
(2.65) is at the NBO (2.65). As it is indeed at the NBO, the
process continues to step 1022, where it checks if Away Market A's
offer is on or off the market center 20. As it is an away market
quote, the process continues to step 1024.
Uncapped Stand-Your-Ground Inside Limit Buy Order Routes to the
Second-Best Away Market Offer
The process continues to step 1024, where the Routing Process
determines that Away Market A is now eligible for routing. As no
prior orders have been routed to Away Market A since it faded its
offer price, the process satisfies its full disseminated offer size
by routing 30 contracts to Away Market A, at the NBO price of
2.65.
After routing to Away Market A, the process continues to step 1032,
where it checks if incoming Buy Order I has any quantity still
available to trade. As it still has 30 contracts remaining, the
process returns to step 1016, where it retrieves the best offer in
the virtual consolidated order and quote list, which is now Away
Market B's offer. In step 1018, the process checks if Buy Order I's
price (2.70) is greater than or equal to Away Market B's offer
(2.65). As Buy Order I's price is higher, the process continues to
step 1020, where it checks if Away Market B's offer (2.65) is at
the NBO (2.65). As it is indeed at the NBO, the process continues
to step 1022, where it checks if Away Market B's offer is on or off
the market center 20. As it is an away market quote, the process
continues to step 1024.
Uncapped Stand-Your-Ground Inside Limit Buy Order Routes to the
Third-Best Away Market Offer
The process continues to step 1024, where the Routing Process
determines that Away Market B is now eligible for routing. As no
prior orders have been routed to Away Market B since it faded its
offer price, the process satisfies its full disseminated offer size
by routing 20 contracts to Away Market B, at the NBO price of
2.65.
After routing to Away Market B, the process continues to step 1032,
where it checks if incoming Buy Order I has any quantity still
available to trade. As it still has 10 contracts remaining, the
process returns to step 1016, where it retrieves the best offer in
the virtual consolidated order and quote list, which is now the MM2
Offer. In step 1018, the process checks if Buy Order 1's price
(2.70) is greater than or equal to the MM2 Offer (2.70). As the
prices are equal, the process continues to step 1020, where it
checks if the MM2 Offer (2.70) is at the NBO (2.65). As the MM2
Offer price is inferior to the NBO, incoming Buy Order I cannot
execute against it, as inside limit orders can only execute at the
NBBO by definition in this embodiment.
Uncapped Stand-Your-Ground Inside Limit Buy Order is Canned at the
New NBO, and Posted
The process continues to step 1040, where it "caps" the remaining
quantity of Buy Order 1, at the NBO price of 2.65. As before, it
does this by retaining incoming Buy Order 1's original limit price
(2.70), but posting it at the NBO price (2.65) so that it locks,
but does not cross, the NBO. The process continues to step 1042,
where it ranks Buy Order I in the Display Order Process of the
internal order book 29a according to its "capped" price of 2.65,
and disseminates Buy Order Ito the public order book. The NBBO is
now 2.65 to 2.65 (10.times.80). The market is now locked.
The virtual consolidated order and quote list now looks like
this:
TABLE-US-00078 Bids Offers Order I: Buy 10 @ 2.65 .rarw. Away Offer
30 @ 2.65 Original price = 2.70 Market C: MM2: Bid 30 @ 2.50 Away
Offer 30 @ 2.65 Market A: Order A: Buy 10 @ 2.50 Away Offer 20 @
2.65 Market B: Away Bid 30 @ 2.50 MM2: Offer 30 @ 2.70 Market C:
LMM: Bid 40 @ 2.45 Away Offer 20 @ 2.70 Market D: Away Bid 40 @
2.45 Market B: Order B: Buy 10 @ 2.40 Away Bid 50 @ 2.40 Market A:
Away Bid 20 @ 2.40 Market D: Order C: Buy 10 @ 2.35
The internal order book 29a now looks like this:
TABLE-US-00079 Bids Offers Order I: Buy 10 @ 2.65 .rarw. Original
price = 2.70 Order A: Buy 10 @ 2.50 Order B: Buy 10 @ 2.40 Order C:
Buy 10 @ 2.35
The market center BBO is now 2.65 to 2.70 (10.times.30)
The public order book now looks like this:
TABLE-US-00080 Bids Offers 10 @2.65 .rarw. 30 @ 2.70 40 @ 2.50 40 @
2.45 10 @ 2.40 10 @ 2.35
The virtual consolidated order and quote list is deleted from local
memory.
Away Markets Fill the Routed Orders, But the Posted
Stand-Your-Ground Inside Limit Buy Order Does Not Ship
Away Markets C, A, and B fill the orders routed to them
Posted Buy Order I does not route additional contracts to them. If
the NBO moves away again (to the price of 2.70) before posted Buy
Order I executes against an incoming marketable sell order, then
the process will remove Buy Order I's cap once again and treat it
as a new incoming order. The uncapped order will be allowed to
execute at its original limit price of 2.70.
Sweep Limit Orders
A sweep limit order is similar to an inside limit order in that it
cannot route to an away market off the NBBO. But unlike an inside
limit order, in this embodiment, an incoming sweep limit order
contemporaneously executes with book orders priced at one tick
inferior to the NBBO, as allowed by marketplace rules (e.g., the
trade-and-ship exception). If marketplace rules also allow market
maker quotes to execute at one tick inferior to the NBBO, then an
incoming sweep limit order will also execute with such market maker
quotes. For example, an incoming sweep limit sell order that is
priced better (lower) than the NBB would execute in the sequence
shown below:
TABLE-US-00081 Bid Side of the Virtual Consolidated Order, and
Quote List. Price Display Order Routing Point Process Working Order
Process Process Highest 1. Displayed 2. Reserve 3. Passive 4.
Discretionary 5. Tracking 6. Away Price orders and order Liquidity
Orders that can Liquidity Market (NBB) quotes at the quantity at
Orders at step up to the Orders at Bids at NBB the NBB the NBB NBB
the NBB the NBB 2nd - 7. Displayed 8. Reserve 9. Passive 10.
Discretionary highest orders (and order Liquidity Orders that can
price quotes, if quantity at Orders at step up to the point
allowed) at the NBB the NBB NBB less one (NBB the NBB less less one
less one tick less one one tick tick tick tick)
An incoming sweep limit order that cannot execute when it is
received is immediately posted at its user-specified limit price.
The nonmarketable sweep limit order is inserted in the internal
order book 29a and ranked according to price/time priority in the
Display Order Process. The order is also disseminated to the public
order book. Posted customer sweep limit orders that are priced at
the NBBO are eligible to execute against incoming marketable orders
in the LMM Guarantee Process or the Directed Order Process, like
any other displayed order type, if they have time priority over the
eligible market maker quote.
An incoming sweep limit order that is marketable at the opposite
side of the NBBO will participate in the LMM Guarantee Process if
the lead market maker is quoting at the opposite side of the NBBO.
Similarly, if the business rules of the market center 20 allow
sweep limit orders to be directed to a specific market maker, then
an incoming sweep limit order that is executable at the opposite
side of the NBBO will participate in the Directed Order Process if
the designated market maker is quoting at the opposite side of the
NBBO.
After executing contemporaneously with orders (and market maker
quotes, if allowed) priced at one tick inferior to the NBBO, if a
sweep limit order's price would cross the NBBO if it were to be
posted, it is automatically capped at the opposite side of the NBBO
before it is posted, i.e., the order will lock the market but it
will not cross the market. The remaining portion of the sweep limit
order is inserted in the Display Order Process of the internal
order book 29a and is ranked according to the price/time priority
of its current (capped) displayed price. The order is also
disseminated to the public order book at its current (capped)
displayed price. The process stores the original user-specified
price so that the order can subsequently be repriced more
aggressively if the NBBO moves away. As the quote engine 23a
notifies the order matching engine 21 whenever a disseminated best
bid or offer quote price touches any order price, whether displayed
or not, in this embodiment, and this may increase the processing
overhead, sweep limit orders are subject to the check for excessive
marketability when they are first received to ensure that their
original prices are not too far through the NBBO.
Once posted, a sweep limit order behaves in a manner that is
similar to a posted stand-your-ground inside limit order. A sweep
limit order stands its ground if locked or crossed by an away
market 24, and neither reprices nor ships. Only when the NBBO moves
away from the posted sweep limit order does it reprice more
aggressively to execute further.
If the NBBO moves away from the posted sweep limit order so that
the market is no longer locked, then the process removes the cap,
and allows the order to revert to its original user-specified limit
price. The repriced order loses its standing in the internal order
book 29a and is processed as if it were a new incoming order. The
order is allowed to execute with all trading interest at the new
NBBO price, and to execute with book orders (and market maker
quotes, if allowed) at one tick inferior to the new NBBO price.
After the sweep limit order can execute no further, if its price
would still cross the market if it were to be posted, it is
automatically capped at the opposite side of the new NBBO before it
is posted, locking the market again. This process continues until
the sweep limit order is depleted, or can be displayed at its
original user-specified limit price without crossing the market.
Once the sweep limit order is displayed at its original price, it
is never capped again.
As described above, the unfilled portion of the sweep limit order
is not routed to the next price level until all the quotes at the
current NBBO are exhausted and the away markets fade their quotes.
This behavior is referred to as "walking the book," as each price
level must be cleared before routing to the next price level. As
each price level is cleared, the sweep limit order can execute at
an increasingly aggressive price.
Incoming Sweep Limit Buy Order Received Process
Referring now to FIGS. 12A-12B, the process is illustrated where
the order matching engine 21 receives an incoming sweep limit buy
order. In this embodiment, a sweep limit buy order can route to
away markets only if they are quoting at the NBO, but can
contemporaneously match book orders at a price that is one tick
inferior to the NBO after all the away markets at the NBO have been
satisfied. Any remaining portion of the order is capped (repriced)
at the NBO and posted, locking the market. Once capped and posted,
if the NBO subsequently moves away from the order's capped price,
then the cap is removed and the order is allowed to execute
further,
In step 1202, the process retrieves the NBO, and in step 1204, the
process determines if the incoming sweep limit buy order is
marketable. If the process determines that the incoming sweep limit
buy order is marketable, then the process continues to step 1205,
where it initiates the "Too-Executable Buy Order Check Process,"
and proceeds to step 1600 in FIG. 16. If the incoming buy order is
not canceled in the Too-Executable Buy Order Check Process, i.e.,
it is not determined to be too executable, then the process
continues to step 1206, where it creates a virtual consolidated
order and quote list for the option series.
The process continues to step 1208, where it checks if the option
series has any assigned market makers. If it does, then the process
continues to step 1210, where it checks if the incoming sweep limit
buy order is a directed order or not. If the incoming sweep limit
buy order is a directed order, then the process continues to step
1214 where the "Directed Order Process" is initiated in step 2000
in FIG. 20A. If, however, the incoming sweep limit buy order is not
a directed order, then the process proceeds to step 1212 where the
"LMM Guaranteed Offer Process" is initiated instead in step 1900 in
FIG. 19.
Regardless of whether the incoming sweep limit buy order executes
in the Directed Order Process, in the LMM Guaranteed Offer Process,
or in neither process (if the applicable market maker is not
quoting at the NBO and is therefore ineligible for a guaranteed
entitlement, or else if the issue does not have any assigned market
makers), if the incoming sweep limit buy order still has quantity
available to trade, then the process continues to step 1216, where
it retrieves the best offer in the virtual consolidated order and
quote list, i.e., the sell order, market maker quote, or
disseminated away market quote with the highest ranking. In step
1218, the process checks if the incoming sweep limit buy order is
still marketable (by way of explanation, it is possible that it is
no longer marketable if the quotes and orders at the NBO were
exhausted).
At step 1218, if the process determines that the incoming sweep
limit buy order is still marketable, then it continues to step
1220, where it checks if the retrieved best offer is at the NBO. If
the retrieved best offer is at the NBO, then the process continues
to step 1222, where it checks if the retrieved best offer is on or
off the market center 20. If the retrieved best offer is on the
market center 20, then the process continues to step 1226, where if
the retrieved best offer is a market maker quote, the process
automatically generates an IOC sell pseudo-order on behalf of the
underlying market maker quote. The process continues to step 1228,
where it matches the incoming sweep limit buy order against the
retrieved sell order or pseudo-order, at the NBO price. If the
matched sell order is a pseudo-order, then in step 1230, the
process notifies the market maker quote engine 32b of the quantity
that was executed so that the market maker quote engine 32b can
decrement the underlying market maker quote.
The process continues to step 1232, where it checks if the incoming
sweep limit buy order still has quantity available to trade. If it
does not, then the process continues to step 1250, where it
terminates as indicated. If, however, the incoming sweep limit buy
order does still have remaining quantity, then the process returns
to step 1216, where it retrieves the next-best offer in the virtual
consolidated order and quote list and continues to step 1218, where
it checks if the incoming sweep limit buy order is still
marketable. The process continues to execute the incoming sweep
limit buy order against all resident trading interest at the NBO as
described above, until the incoming sweep limit buy order is
depleted, or else until the retrieved best offer is an away market
quote, as described next.
Returning to step 1222, if, however, the retrieved best offer is an
away market quote, then in step 1224, the process releases the
incoming sweep limit buy order to the Routing Process, which routes
to the highest-ranking away market as appropriate, up to its
disseminated offer size, at the NBO price. After routing to the
away market, the process continues to step 1232, where it checks if
the incoming sweep limit buy order still has quantity available to
trade. If the order is depleted, then the process terminates in
step 1250 as indicated. If, however, the order still has remaining
quantity, then the process returns to step 1216, where it retrieves
the next best offer, and if the retrieved best offer is at the NBO,
routes to the next-highest ranking away market according to the
steps just described.
Returning to step 1220, if the retrieved best offer is inferior to
the NBO, then the process continues to step 1238, where it checks
if there are any resting sell orders that can execute at one tick
inferior to the NBO. If there are sell orders that can execute at
one tick inferior to the NBO, then in step 1240, the process
executes the incoming sweep limit buy order against each resting
sell order, in the sequence of their ranking in the virtual
consolidated order and quote list. In step 1242, the process checks
if the incoming sweep limit buy order still has quantity available
to trade after matching all sell orders priced at one tick inferior
to the NBO. If the incoming buy order was depleted, then the
process terminates in step 1250 as indicated. If, however, the
incoming sweep limit buy order still has quantity available to
trade, then the process continues to step 1244.
In step 1244, the process caps the incoming sweep limit buy order's
price at the NBO so that it locks, but does not cross, the market.
The process then continues to step 1246, where it ranks the order
in the Display Order Process of the internal order book 29a
according to the price/time priority of its current price (the
NBO), and disseminates the order to the public order book.
Continuing to step 1248, if the quote engine 23a notifies the order
matching engine 21 that the NBO price has moved higher while the
capped sweep limit buy order is posted, then the capped order can
execute further. The process removes the cap, allows the sweep
limit buy order to revert to its original user-specified limit
price, and processes it as if it were a new incoming order.
Accordingly, the process returns to step 1202, and the sweep limit
buy order is allowed to execute further at its more aggressive
price. After executing all trading interest at the new NBO price
and the eligible sell orders priced at one tick inferior to the new
NBO price, if the sweep limit buy order still has quantity
remaining, then at step 1244, the process caps the order at the new
NBO, and posts it at its new, more aggressive price in step 1246.
This process is repeated until the sweep limit buy order is
depleted, or else the NBO moves away to the extent to which the
order can be posted at its original user-specified price. Once the
order is posted at its original user-specified limit price, it is
never capped again. The process then terminates in step 1250 as
indicated.
Returning to step 1204, if, however, the incoming sweep limit buy
order was never marketable, then the process continues to step
1234, where it ranks the order in the Display Order Process of the
internal order book 29a according to price/time priority, and
disseminates the order to the public order book. As the
nonmarketable order is ranked at its original limit price, it is
not affected when the NBO changes. The process then terminates in
step 1236 as indicated.
Returning to step 1218, if, however, the incoming sweep limit buy
order is no longer marketable, then the process continues to step
1234 and 1236 as just described. Incoming Sweep Limit Sell Order
Received Process
Referring now to FIGS. 13A-13B, the process is illustrated where
the order matching engine 21 receives an incoming sweep limit sell
order. This routine is very similar to the process described above
in FIGS. 12A-12B for receiving an incoming sweep limit buy
order.
In step 1302, the process retrieves the NBB, and in step 1304, the
process determines if the incoming sweep limit sell order is
marketable. If the process determines that the incoming sweep limit
sell order is marketable, then the process continues to step 1305,
where it initiates the "Too-Executable Sell Order Check Process,"
and proceeds to step 1700 in FIG. 17. If the incoming sell order is
not canceled in the Too-Executable Sell Order Check Process, i.e.,
it is not determined to be too executable, then the process
continues to step 1306, where it creates a virtual consolidated
order and quote list for the option series.
The process continues to step 1308, where it checks if the option
series has any assigned market makers. If it does, then the process
continues to step 1310, where it checks if the incoming sweep limit
sell order is a directed order or not. If the incoming sweep limit
sell order is a directed order, then the process continues to step
1314 where the "Directed Order Process" is initiated in step 2000
in FIG. 20A. If, however, the incoming sweep limit sell order is
not a directed order, then the process proceeds to step 1312 where
the "LMM Guaranteed Bid Process" is initiated instead in step 1800
in FIG. 18.
Regardless of whether the incoming sweep limit sell order executes
in the Directed Order Process, in the LMM Guaranteed Bid Process,
or in neither process (if the applicable market maker is not
quoting at the NBB and is therefore ineligible for a guaranteed
entitlement, or else if the issue does not have any assigned market
makers), if the incoming sweep limit sell order still has quantity
available to trade, then the process continues to step 1316, where
it retrieves the best bid in the virtual consolidated order and
quote list, i.e., the buy order, market maker quote, or
disseminated away market quote with the highest ranking. In step
1318, the process checks if the incoming sweep limit sell order is
still marketable (by way of explanation, it is possible that it is
no longer marketable if the quotes and orders at the NBB were
exhausted).
At step 1318, if the process determines that the incoming sweep
limit sell order is still marketable, then it continues to step
1320, where it checks if the retrieved best bid is at the NBB. If
the retrieved best bid is at the NBB, then the process continues to
step 1322, where it checks if the retrieved best bid is on or off
the market center 20. If the retrieved best bid is on the market
center 20, then the process continues to step 1326, where if the
retrieved best bid is a market maker quote, the process
automatically generates an IOC buy pseudo-order on behalf of the
underlying market maker quote. The process continues to step 1328,
where it matches the incoming sweep limit sell order against the
retrieved buy order or pseudo-order, at the NBB price. If the
matched buy order is a pseudo-order, then in step 1330, the process
notifies the market maker quote engine 32b of the quantity that was
executed so that the market maker quote engine 32b can decrement
the underlying market maker quote.
The process continues to step 1332, where it checks if the incoming
sweep limit sell order still has quantity available to trade. If it
does not, then the process continues to step 1350, where it
terminates as indicated. If, however, the incoming sweep limit sell
order does still have remaining quantity, then the process returns
to step 1316, where it retrieves the next-best bid in the virtual
consolidated order and quote list and continues to step 1318, where
it checks if the incoming sweep limit sell order is still
marketable. The process continues to execute the incoming sweep
limit sell order against all resident trading interest at the NBB
as described above, until the incoming sweep limit sell order is
depleted, or else until the retrieved best bid is an away market
quote, as described next.
Returning to step 1322, if, however, the retrieved best bid is an
away market quote, then in step 1324, the process releases the
incoming sweep limit sell order to the Routing Process, which
routes to the highest-ranking away market as appropriate, up to its
disseminated Bid size, at the NBB price. After routing to the away
market, the process continues to step 1332, where it checks if the
incoming sweep limit sell order still has quantity available to
trade. If the order is depleted, then the process terminates in
step 1350 as indicated. If, however, the order still has remaining
quantity, then the process returns to step 1316, where it retrieves
the next best bid, and if the retrieved best bid is at the NBB,
routes to the next-highest ranking away market according to the
steps just described.
Returning to step 1320, if the retrieved best bid is inferior to
the NBB, then the process continues to step 1338, where it checks
if there are any resting buy orders that can execute at one tick
inferior to the NBB. If there are buy orders that can execute at
one tick inferior to the NBB, then in step 1340, the process
executes the incoming sweep limit sell order against each resting
buy order, in the sequence of their ranking in the virtual
consolidated order and quote list. In step 1342, the process checks
if the incoming sweep limit sell order still has quantity available
to trade after matching all buy orders priced at one tick inferior
to the NBB. If the incoming sell order was depleted, then the
process terminates in step 1350 as indicated. If, however, the
incoming sweep limit sell order still has quantity available to
trade, then the process continues to step 1344.
In step 1344, the process caps the incoming sweep limit sell
order's price at the NBB so that it locks, but does not cross, the
market. The process then continues to step 1346, where it ranks the
order in the Display Order Process of the internal order book 29a
according to the price/time priority of its current price (the
NBB), and disseminates the order to the public order book.
Continuing to step 1348, if the quote engine 23a notifies the order
matching engine 21 that the NBB price has moved lower while the
capped sweep limit sell order is posted, then the capped order can
execute further. The process removes the cap, allows the sweep
limit sell order to revert to its original user-specified limit
price, and processes it as if it were a new incoming order.
Accordingly, the process returns to step 1302, and the sweep limit
sell order is allowed to execute further at its more aggressive
price. After executing all trading interest at the new NBB price
and the eligible buy orders priced at one tick inferior to the new
NBB price, if the sweep limit sell order still has quantity
remaining, then at step 1344, the process caps the order at the new
NBB, and posts it at its new, more aggressive price in step 1346.
This process is repeated until the sweep limit sell order is
depleted, or else the NBB moves away to the extent to which the
order can be posted at its original user-specified price. Once the
order is posted at its original user-specified limit price, it is
never capped again. The process then terminates in step 1350 as
indicated.
Returning to step 1304, if, however, the incoming sweep limit sell
order was never marketable, then the process continues to step
1334, where it ranks the order in the Display Order Process of the
internal order book 29a according to price/time priority, and
disseminates the order to the public order book. As the
nonmarketable order is ranked at its original limit price, it is
not affected when the NBB changes. The process then terminates in
step 1336 as indicated.
Returning to step 1318, if, however, the incoming sweep limit sell
order is no longer marketable, then the process continues to step
1334 and 1336 as just described.
Sweep Limit Order Trading Example
In this example, the issue has an assigned lead market maker (LMM)
that is quoting at the NBO when a marketable incoming sweep limit
buy order is received. The sweep limit buy order executes in the
LMM Guaranteed Offer Process and the Display Order Process and then
routes to the away market at the NBO. After routing at the NBO, the
order contemporaneously executes with a posted sell order whose
price is one tick inferior to the NBO. The remaining portion of the
sweep limit buy order is repriced less aggressively so that it
locks, but does not cross, the NBO. When the NBO moves away from
the posted sweep limit order, the order reverts to its
user-specified price, routes again, executes contemporaneously with
a posted sell order whose price is one tick inferior to the new
NBO, and the remaining portion of the sweep limit buy order is
automatically repriced and posted at the new, more aggressive NBO
price. The NBBO is 2.50 to 2.60 (70.times.110).
The away market BBO book 25a looks like this:
TABLE-US-00082 Bids Offers Away Market C: Bid 30 @ 2.50 Away Market
A: Offer 50 @ 2.60 Away Market B: Bid 40 @ 2.45 Away Market B:
Offer 40 @ 2.60 Away Market A: Bid 50 @ 2.40 Away Market C: Offer
30 @ 2.65 Away Market D: Bid 20 @ 2.40 Away Market D: Offer 20 @
2.70
The market maker quote book 33a looks like this:
TABLE-US-00083 Bids Offers MM2: Bid 30 @ 2.50 LMM: Offer 40 @ 2.60
LMM: Bid 40 @ 2.45 MM2: Offer 30 @ 2.70
The internal order book 29a looks like this. Order D is on behalf
of a customer, whereas Order E is not:
TABLE-US-00084 Bids Offers Order A: Buy 10 @ 2.50 Order D: Sell 10
@ 2.60 Order B: Buy 10 @ 2.40 Order E: Sell 10 @ 2.60 Order C: Buy
10 @ 2.35 Order F: Sell 10 @ 2.65 Order X: Sell 10 @ 2.70
The market center BBO is 2.50 to 2.60 (40.times.60)
The public order book looks like this:
TABLE-US-00085 Bids Offers 40 @ 2.50 60 @ 2.60 40 @ 2.45 10 @ 2.65
10 @ 2.40 30 @ 2.70 10 @ 2.35
Incoming Marketable Sweep Limit Buy Order is Received
In step 1200, the order matching engine 21 receives the following
order: Order J: Buy 170 @ 2.70, Sweep Limit In step 1202, the
process retrieves the NBO (2.60). In step 1204, the process checks
if incoming Buy Order J is marketable, i.e., is priced at or better
than the NBO. As it is, the process continues to step 1205, where
it initiates the "Too-Executable Buy Order Check Process," and
proceeds to step 1600 in FIG. 16.
In step 1602, the process checks if incoming Buy Order J's price
(2.70) is higher than the NBO (2.60). As it is, the process
continues to step 1604, where it checks if sweep limit orders
should be checked for excessive marketability. As the check for
excessive marketability is enabled for sweep limit orders in this
embodiment, the process continues to step 1608, where it retrieves
the "MaxPercentOffNBBO" parameter, which is configured to 15% in
this example. In step 1610, the process computes the
MaxPriceThruNBO by multiplying the NBO (2.60) by the
MaxPercentOffNBBO (15%), deriving the MaxPriceThruNBO=0.39 (15% of
2.60=0.39). As the tick for this issue is 0.05, the process rounds
the MaxPriceThruNBO down to 0.35. In step 1612, the process
computes the MaxBuyPrice by adding the derived MaxPriceThruNBO
(0.35) to the NBO (2.60), deriving the MaxBuyPrice of 2.95
(2.60+0.35=2.95). Accordingly, the highest price allowable for
incoming Buy Order J is 2.95. The process continues to step 1614,
where it checks if incoming Buy Order J's price (2.70) is higher
than the MaxBuyPrice (2.95). As it is not higher, incoming Buy
Order J does not need to be repriced or canceled, and the process
continues to step 1616, where it returns to the step where it was
originally invoked, back to step 1205.
The process continues to step 1206, where it combines the away
market BBO book 25a, the market maker quote book 33a, and the
internal order book 29a together in a virtual consolidated order
and quote list, which it ranks in price/display/time priority, but
with a preference for resident interest over away market interest
at the same price level. In this example, Sell Orders D and E were
received before the LMM Offer was quoted.
The virtual consolidated order and quote list looks like this:
TABLE-US-00086 Bids Offers MM2: Bid 30 @ 2.50 Order D: Sell 10 @
2.60 Order A: Buy 10 @ 2.50 Order E: Sell 10 @ 2.60 Away Market C:
Bid 30 @ 2.50 LMM: Offer 40 @ 2.60 LMM: Bid 40 @ 2.45 Away Market
A: Offer 50 @ 2.60 Away Market B: Bid 40 @ 2.45 Order F: Sell 10 @
2.65 Order B: Buy 10 @ 2.40 Away Market B: Offer 40 @ 2.65 Away
Market A: Bid 50 @ 2.40 MM2: Offer 30 @ 2.70 Away Market D: Bid 20
@ 2.40 Order X: Sell 10 @ 2.70 Order C: Buy 10 @ 2.35 Away Market
C: Offer 30 @ 2.70 Away Market D: Offer 20 @ 2.70
The process continues to step 1208, where it checks if this issue
has any assigned market makers. As it does, the process continues
to step 1210, where it checks if incoming Buy Order J is a directed
order or not. As it is not a directed order, the process continues
to step 1212, where it initiates the "LMM Guaranteed Offer
Process," and proceeds to step 1900 in FIG. 19.
LMM Guarantee Process is in Effect for this Issue
In step 1902, the process retrieves the LMM Offer (40 @ 2.60). In
step 1904, it checks if the LMM Offer is at the NBO (2.60). As it
is, the lead market maker is entitled to guaranteed participation
with incoming Buy Order J, after any superior displayed customer
orders are executed first. The process continues to step 1908,
where it checks if incoming Buy Order J's order size (170) is
greater than two contracts. As it is, the process continues to step
1914.
Incoming Sweep Limit Buy Order Matches the Displayed Customer Sell
Order with Time Priority Over the LMM Offer
In step 1914, the process checks if there are any customer sell
orders displayed at the NBO, and finds posted Sell Order D. The
process continues to step 1916, where it stores the timestamp on
the LMM Offer in the parameter "LMMOfferTimestamp." In step 1918,
the process retrieves the earliest displayed customer sell order at
the NBO, Sell Order D, and in step 1920, the process compares the
timestamp of posted Sell Order D to the LMMOfferTimestamp. As
posted Sell Order D was received earlier than the LMM Offer, the
process continues to step 1922, where it matches 10 contracts of
incoming Buy Order J with posted Sell Order D, completely depleting
posted Sell Order D and removing it from the books.
The process continues to step 1924, where it checks if incoming Buy
Order J still has quantity available to trade. As it still has 160
contracts remaining, the process continues to step 1928, where it
checks if there are any additional customer sell orders at the NBO.
As there are none (Sell Order E is not on behalf of a customer),
the process continues to step 1932.
Incoming Sweep Limit Buy Order Matches the LMM Offer
In step 1932, the process retrieves the LMMGuaranteedPercent
parameter, which is configured to 40% in this example. In step
1934, the process derives the LMMGuaranteedAllocation (64
contracts) by multiplying the LMMGuaranteedPercent (40%) by the
remaining portion of incoming Buy Order J (160 contracts). The
LMMGuaranteedAllocation is the maximum quantity of contracts that
can execute in the LMM Guarantee Process.
In step 1938, the process matches 40 contracts of incoming Buy
Order J against the LMM Offer, the lesser of the
LMMGuaranteedAllocation (64 contracts) and the LMM Offer size (40
contracts), at the NBO price of 2.60. It does this by generating an
IOC pseudo-order to Sell 40 @ 2.60 on behalf of the LMM Offer, and
executing incoming Buy Order 1 against the sell pseudo-order. The
LMM Offer at 2.60 is completely depleted, and is removed from the
virtual consolidated order and quote list. The process notifies the
market maker quote engine 32b to decrement the LMM Offer by the 40
contracts executed. The LMM Guaranteed Offer Process has
completed.
The virtual consolidated order and quote list now looks like
this:
TABLE-US-00087 Bids Offers MM2: Bid 30 @ 2.50 Order E: Sell 10 @
2.60 Order A: Buy 10 @ 2.50 Away Market A: Offer 50 @ 2.60 Away
Market C: Bid 30 @ 2.50 Order F: Sell 10 @ 2.65 LMM: Bid 40 @ 2.45
Away Market B: Offer 40 @ 2.65 Away Market B: Bid 40 @ 2.45 MM2:
Offer 30 @ 2.70 Order B: Buy 10 @ 2.40 Order X: Sell 10 @ 2.70 Away
Market A: Bid 50 @ 2.40 Away Market C: Offer 30 @ 2.70 Away Market
D: Bid 20 @ 2.40 Away Market D: Offer 20 @ 2.70 Order C: Buy 10 @
2.35
The market maker quote engine 32b decrements the LMM Offer by the
40 contracts executed, completely depleting it. The market maker
quote book 33a now looks like this (the lead market maker will
manually replenish its offer, but this is not illustrated to
simplify the example):
TABLE-US-00088 Bids Offers MM2: Bid 30 @ 2.50 MM2: Offer 30 @ 2.70
LMM: Bid 40 @ 2.45
The internal order book 29a now looks like this:
TABLE-US-00089 Bids Offers Order A: Buy 10 @ 2.50 Order E: Sell 10
@ 2.60 Order B: Buy 10 @ 2.40 Order F: Sell 10 @ 2.65 Order C: Buy
10 @ 2.35 Order X: Sell 10 @ 2.70
The market center BBO is now 2.50 to 2.60 (40.times.10)
The public order book looks like this:
TABLE-US-00090 Bids Offers 40 @ 2.50 10 @ 2.60 40 @ 2.45 10 @ 2.65
10 @ 2.40 40 @ 2.70 10 @ 2.35
The process continues to step 1942, where it checks if incoming Buy
Order J still has any quantity available to trade. As it still has
120 contracts remaining, the process continues to step 1946, where
it returns to the step where the routine was originally invoked,
back to step 1212 of FIG. 12A.
Incoming Sweep Limit Buy Order Matches the Non-Customer Sell
Order
The process continues to step 1216, where it retrieves the best
offer in the virtual consolidated order and quote list, which is
posted Sell Order E. In step 1218, the process checks if incoming
Buy Order J's price (2.70) is greater than or equal to posted Sell
Order E's price (2.60). As incoming Buy Order J's price is higher,
the process continues to step 1220, where it checks if posted Sell
Order E's price (2.60) is at the NBO (2.60). As Sell Order E is at
the NBO, the process continues to step 1222, where it checks if
posted Sell Order E is on or off the market center 20. As it is a
resident book order, the process bypasses step 1226 and continues
to step 1228, where it matches 10 contracts of incoming Buy Order J
against posted Sell Order E, at the NBO price of 2.60. Posted Sell
Order E is completely depleted and is removed from the books. The
NBBO is now 2.50 to 2.60 (70.times.50)
The virtual consolidated order and quote list now looks like
this:
TABLE-US-00091 Bids Offers MM2: Bid 30 @ 2.50 Away Market A: Offer
50 @ 2.60 Order A: Buy 10 @ 2.50 Order F: Sell 10 @ 2.65 Away
Market C: Bid 30 @ 2.50 Away Market B: Offer 40 @ 2.65 LMM: Bid 40
@ 2.45 MM2: Offer 30 @ 2.70 Away Market B: Bid 40 @ 2.45 Order X:
Sell 10 @ 2.70 Order B: Buy 10 @ 2.40 Away Market C: Offer 30 @
2.70 Away Market A: Bid 50 @ 2.40 Away Market D: Offer 20 @ 2.70
Away Market D: Bid 20 @ 2.40 Order C: Buy 10 @ 2.35
The internal order book 29a now looks like this:
TABLE-US-00092 Bids Offers Order A: Buy 10 @ 2.50 Order F: Sell 10
@ 2.65 Order B: Buy 10 @ 2.40 Order X: Sell 10 @ 2.70 Order C: Buy
10 @ 2.35
The market center BBO is now 2.50 to 2.65 (40.times.10)
The public order book looks like this:
TABLE-US-00093 Bids Offers 40 @ 2.50 10 @ 2.65 .rarw. 40 @ 2.45 40
@ 2.70 10 @ 2.40 10 @ 2.35
The process bypasses step 1230 and continues to step 1232, where it
checks if incoming Buy Order J still has any quantity available to
trade. As it still has 110 contracts remaining, the process returns
to step 1216 and retrieves the best offer in the virtual
consolidated order and quote list, which is Away Market A's offer.
In step 1218, the process checks if incoming Buy Order J's price
(2.70) is greater than or equal to Away Market A's offer (2.60). As
incoming Buy Order J's price is higher, the process continues to
step 1220, where it checks if Away Market A's offer (2.60) is at
the NBO (2.60). As it is indeed at the NBO, the process continues
to step 1222, where it checks if Away Market A's offer is on or off
the market center 20. As it is an away market quote, the process
continues to step 1224.
Incoming Sweep Limit Buy Order Routes to the Best Away Market
Offer
The process continues to step 1224, where it allows the Routing
Process to determine the highest-ranking eligible away market at
the NBO. Away Market A is alone at the NBO. As no prior orders have
been routed to Away Market A in this example, the process satisfies
its full disseminated offer size by routing 50 contracts to Away
Market A, at the NBO price of 2.60.
After routing to Away Market A, the process continues to step 1232,
where it checks if incoming Buy Order J has any quantity still
available to trade. As it still has 60 contracts remaining, the
process returns to step 1216, where it retrieves the best offer in
the virtual consolidated order and quote list. As Away Market A's
offer has been completely satisfied, the best offer is now posted
Sell Order F. In step 1218, the process checks if incoming Buy
Order J's price (2.70) is greater than or equal to Sell Order F's
price (2.65). As Buy Order J's price is higher, the process
continues to step 1220, where it checks if Sell Order F is at the
NBO. Sell Order F's price (2.65) is inferior to the NBO (2.60).
Incoming Sweep Limit Buy Order Executes with Sell Order Priced at
One Tick Inferior to the NBO
The process continues to step 1238, where it checks if there are
any sell orders that can execute at one tick inferior to the NBO
(2.60). As Sell Order F's price (2.65) is one tick inferior, it is
eligible to execute. In step 1240, the process matches 10 contracts
of incoming Buy Order J against posted Sell Order F, at the price
of 2.65, completely depleting Sell Order F and removing it from the
books. The NBBO is still 2.50 to 2.60 (70.times.50)
The virtual consolidated order and quote list now looks like
this:
TABLE-US-00094 Bids Offers MM2: Bid 30 @ 2.50 Away Market A: Offer
50 @ 2.60 Order A: Buy 10 @ 2.50 Away Market B: Offer 40 @ 2.65
Away Market C: Bid 30 @ 2.50 MM2: Offer 30 @ 2.70 LMM: Bid 40 @
2.45 Order X: Sell 10 @ 2.70 Away Market B: Bid 40 @ 2.45 Away
Market C: Offer 30 @ 2.70 Order B: Buy 10 @ 2.40 Away Market D:
Offer 20 @ 2.70 Away Market A: Bid 50 @ 2.40 Away Market D: Bid 20
@ 2.40 Order C: Buy 10 @ 2.35
The internal order book 29a now looks like this:
TABLE-US-00095 Bids Offers Order A: Buy 10 @ 2.50 Order X: Sell 10
@ 2.70 Order B: Buy 10 @ 2.40 Order C: Buy 10 @ 2.35
The market center BBO is now 2.50 to 2.70 (40.times.40)
The public order book looks like this:
TABLE-US-00096 Bids Offers 40 @ 2.50 40 @ 2.70 .rarw. 40 @ 2.45 10
@ 2.40 10 @ 2.35
As there are no additional sell orders that can execute at the
price of 2.65, the process continues to step 1242, where it checks
if incoming Buy Order J has any quantity available to trade. As it
still has 50 contracts remaining, the process continues to step
1244.
Incoming Sweep Limit Buy Order's Price is Capped at the NBO and
Posted
In step 1244, the process "caps" incoming Buy Order J, at the NBO
price of 2.60. It does this by retaining incoming Buy Order J's
original limit price (2.70), but posting it at the NBO price (2.60)
so that it locks, but does not cross, the NBO. The process
continues to step 1246, where it ranks Buy Order J in the Display
Order Process of the internal order book 29a according to its
"capped" price of 2.60, and disseminates Buy Order J to the public
order book. The NBBO is now 2.60 to 2.60 (50.times.90). The market
is now locked.
The virtual consolidated order and quote list now looks like
this:
TABLE-US-00097 Bids Offers Order J: Buy 50 @ 2.60 .rarw. Away Offer
50 @ 2.60 Original price = 2.70 Market A: MM2: Bid 30 @ 2.50 Away
Offer 40 @ 2.65 Market B: Order A: Buy 10 @ 2.50 MM2: Offer 30 @
2.70 Away Bid 30 @ 2.50 Order X: Sell 10 @ 2.70 Market C: LMM: Bid
40 @ 2.45 Away Offer 30 @ 2.70 Market C: Away Bid 40 @ 2.45 Away
Offer 20 @ 2.70 Market B: Market D: Order B: Buy 10 @ 2.40 Away Bid
50 @ 2.40 Market A: Away Bid 20 @ 2.40 Market D: Order C: Buy 10 @
2.35
The internal order book 29a now looks like this:
TABLE-US-00098 Bids Offers Order J: Buy 50 @ 2.60 .rarw. Order X:
Sell 10 @ 2.70 Original price = 2.70 Order A: Buy 10 @ 2.50 Order
B: Buy 10 @ 2.40 Order C: Buy 10 @ 2.35
The market center BBO is now 2.60 to 2.70 (50.times.40)
The public order book looks like this:
TABLE-US-00099 Bids Offers 50 @ 2.60 .rarw. 40 @ 2.70 .rarw. 40 @
2.50 40 @ 2.45 10 @ 2.40 10 @ 2.35
Away Market Fills the Routed Order, But the Posted Sweep Limit Buy
Order Does Not Route Additional Quantity Away Market A fills the 50
contracts routed to it
Unlike a reprice-and-ship inside limit order, which routes to an
away market that fills it so long as the away market and the posted
order are both still at the NBBO, in this embodiment, a sweep limit
order does NOT ship additional contracts to an away market in
response to a fill. Accordingly, posted Buy Order J does not ship
to Away Market A.
Away Market Fades Its Offer Off the NBO Away Market A fades its
offer from the NBO The NBBO is now 2.60 to 2.65.(50.times.40). The
market is no longer locked.
The away market BBO book 25a looks like this:
TABLE-US-00100 Bids Offers Away Bid 30 @ 2.50 Away Offer 40 @ 2.65
Market C: Market B: Away Bid 40 @ 2.45 Away Offer 30 @ 2.70 Market
B: Market C: Away Bid 50 @ 2.40 Away Offer 20 @ 2.70 Market A:
Market D: Away Bid 20 @ 2.40 Away Offer 50 @ 2.70 .rarw. Market D:
Market A:
The quote engine 23a notifies the order matching engine 21 of the
change to Away Market A's offer and the change to the NBO. As
described in step 1248, as the NBO price has moved higher (it was
previously 2.60, but is now 2.65), the process removes the cap from
posted Buy Order J, allowing it to revert to its original order
price of 2.70, and processes it as if it were a new incoming order,
removing it from the books.
Posted Sweep Limit Buy Order's Cap is Removed, and the Remaining
Quantity is Processed Like a New Incoming Order
In step 1202, the process retrieves the NBO (2.65). In step 1204,
it checks if "incoming" Buy Order J's price (2.70, its original
price) is marketable, i.e., is at or better than the NBO (2.65). As
it is, the process continues to step 1205, where it initiates the
"Too-Executable Buy Order Check Process," and proceeds to step 1600
in FIG. 16. Buy Order J is not "too executable," as the MaxBuyPrice
is now 3.00 (NBO price of 2.65+0.35=3.00). The process continues to
step 1206, where it combines the away market BBO book 25a, the
market maker quote book 33a, and the internal order book 29a
together in a virtual consolidated order and quote list, which it
ranks in price/display/time priority, but with a preference for
resident interest over away market interest at the same price
level.
The virtual consolidated order and quote list looks like this:
TABLE-US-00101 Bids Offers MM2: Bid 30 @ 2.50 Away Offer 40 @ 2.65
Order A: Buy 10 @ 2.50 Market B: Away Bid 30 @ 2.50 MM2: Offer 30 @
2.70 Market C: Order X: Sell 10 @ 2.70 LMM: Bid 40 @ 2.45 Away
Offer 30 @ 2.70 Away Bid 40 @ 2.45 Market C: Market B: Away Offer
20 @ 2.70 Order B: Buy 10 @ 2.40 Market D: Away Bid 50 @ 2.40 Away
Offer 50 @ 2.70 .rarw. Market A: Market A: Away Bid 20 @ 2.40
Market D: Order C: Buy 10 @ 2.35
The process continues to step 1208, where it checks if this issue
has any assigned market makers. As it does, the process continues
to step 1210, where it checks if "incoming" Buy Order J is a
directed order or not. It should be noted that once an order is
posted, it is never treated as a directed order again, even if it
was originally sent as a directed order. As Buy Order J is not a
directed order, the process continues to step 1212, to initiate the
"LMM Guaranteed Offer Process." However, as the LMM Offer is not
replenished in any of the examples of this document for ease of
illustration, the process continues to step 1216 instead.
Uncapped Sweep Limit Buy Order Routes to an Away Market
In step 1216, the process retrieves the best offer in the virtual
consolidated order and quote list, which is Away Market B's offer.
In step 1218, the process checks if "incoming" Buy Order J's price
(2.70) is greater than or equal to Away Market B's offer (2.65). As
Buy Order J's price is higher, the process continues to step 1220,
where it checks if Away Market B's offer (2.65) is at the NBO
(2.65). As it is at the NBO, the process continues to step 1222,
where it checks if Away Market B's offer is on or off the market
center 20. As it is an away market quote, the process continues to
step 1224, where it routes 40 contracts to Away Market B at the NBO
price of 2.65.
The process then continues to step 1232, where it checks if Buy
Order J still has any quantity available to trade. As it still has
10 contracts remaining, the process returns to step 1216, where it
retrieves the best offer, which is now the MM2 Offer since Away
Market B's offer was completely satisfied. In step 1218, the
process checks if Buy Order J's price (2.70) is greater than or
equal to the MM2 Offer price (2.70). In step 1220, if checks if the
MM2 Offer is at the NBO. As the MM2 Offer (2.70) is inferior to the
NBO (2.65), the process continues to step 1238.
Uncapped Sweep Limit Buy Order Executes with Sell Order Priced at
One Tick Inferior to the NBO
The process continues to step 1238, where it checks if there are
any resting sell orders that can execute at the NBO (2.65) plus one
tick. As Sell Order X (2.70) is priced at one tick inferior to the
NBO, the process continues to step 1240, where it matches the
remaining 10 contracts of Buy Order J against posted Sell Order X,
at the price of 2.70, completely depleting both orders. Sell Order
X is removed from the books.
The NBBO is still 2.50 to 2.65 (70.times.40)
The virtual consolidated order and quote list now looks like
this:
TABLE-US-00102 Bids Offers MM2: Bid 30 @ 2.50 Away Market B: Offer
40 @ 2.65 Order A: Buy 10 @ 2.50 MM2: Offer 30 @ 2.70 Away Market
C: Bid 30 @ 2.50 Away Market C: Offer 30 @ 2.70 LMM: Bid 40 @ 2.45
Away Market D: Offer 20 @ 2.70 Away Market B: Bid 40 @ 2.45 Away
Market A: Offer 50 @ 2.70 Order B: Buy 10 @ 2.40 Away Market A: Bid
50 @ 2.40 Away Market D: Bid 20 @ 2.40 Order C: Buy 10 @ 2.35
The internal order book 29a now looks like this:
TABLE-US-00103 Bids Offers Order A: Buy 10 @ 2.50 Order B: Buy 10 @
2.40 Order C: Buy 10 @ 2.35
The market center BBO is now 2.50 to 2.70 (40.times.30)
The public order book looks like this:
TABLE-US-00104 Bids Offers 40 @ 2.50 30 @ 2.70 .rarw. 40 @ 2.45 10
@ 2.40 10 @ 2.35
The process continues to step 1242, where it checks if incoming Buy
Order J has any quantity available to trade. As it does not, the
process terminates in step 1250 as indicated. The virtual
consolidated order and quote list is deleted from local memory.
Away Market B fills the 40 contracts routed to it. Buy Order J is
completely matched.
It should be noted that if marketplace rules allow market maker
quotes to contemporaneously execute at one tick inferior to the
NBO, then the MM2 offer would have executed instead of Sell Order
X, as it has time priority at the price of 2.70. The process would
have generated a sell pseudo-order on behalf of the MM2 offer,
executed incoming Buy Order J against the pseudo-order, and then
notified the market maker quote engine 32b to decrement the MM2
offer by 10 contracts.
Intermarket Sweep Limit Orders
An intermarket sweep limit order will execute contemporaneously
with all trading interest on and off the market center 20, routing
to multiple away markets 24 at multiple price levels. Although the
obligation to each price level must be satisfied before proceeding
to the next-best price level, the process does not need to wait for
the disseminated NBBO to move away before routing to inferior price
levels. An intermarket sweep limit order will execute at as many
price levels as are allowed by the rules of the order type and the
marketplace.
If the marketplace allows intermarket sweeping but imposes a cap on
the number of price levels that can be routed to contemporaneously,
then the cap is stored as a parameter in the Routing Process. For
example, if intermarket sweep limit orders are allowed to route up
to two minimum price increments (ticks) inferior to the NBBO and
the minimum price increment for the issue is a penny, then an
incoming intermarket sweep limit buy order can contemporaneously
route to away markets whose disseminated offers are as high as the
NBO plus two cents, whereas an incoming intermarket sweep limit
sell order can contemporaneously route to away markets whose
disseminated bids are as low as the NBB less two cents. The
incoming sweep limit order can execute with resident trading
interest at as many price levels as possible, so long as the
execution does not trade through an away market.
For example, an incoming intermarket sweep limit sell order that is
priced through the NBB by four or more ticks would execute in the
sequence shown below if intermarket sweeping is capped at two ticks
inferior to the NBBO, and no away market is quoting at three ticks
inferior to the NBBO:
TABLE-US-00105 Bid Side of the Virtual Consolidated Order, and
Quote List. Display Price Order Routing Point Process Working Order
Process Process Highest 1. Displayed 2. Reserve 3. Passive 4.
Discretionary 5. Tracking 6. Away Price orders and order Liquidity
Orders that can Liquidity Market (NBB) quotes at the quantity at
Orders at step up to the Orders at Bids at NBB the NBB the NBB NBB
the NBB the NBB 2nd - 7. Displayed 8. Reserve 9. Passive 10.
Discretionary 11. Away highest orders and order Liquidity Orders
that can Market price quotes at the quantity at Orders at step up
to the Bids at point NBB the NBB the NBB NBB the NBB less one tick
less one less one less one tick less one tick tick tick 3rd - 12.
13. 14. Passive 15. 16. Away highest Displayed Reserve Liquidity
Discretionary Market price orders and order Orders at Orders that
can Bids at point quotes at the quantity at the NBB step up to the
the NBB NBB the NBB less two NBB less two less two ticks less two
ticks less two ticks ticks ticks 4th - 17. 18. 19. Passive 20.
highest Displayed Reserve Liquidity Discretionary price orders and
order Orders at Orders that can point quotes at the quantity at the
NBB step up to the NBB the NBB less three NBB less three less three
less three ticks ticks ticks ticks 5th - 21. 22. 23. Passive 24.
highest Displayed Reserve Liquidity Discretionary price orders and
order Orders at Orders that can point quotes at the quantity at the
NBB step up to the NBB the NBB less four NBB less four less four
ticks less four ticks ticks ticks
If there is no cap on the number of price levels at which an
intermarket sweep limit order can route to contemporaneously, then
the process simply executes the order until it is no longer
marketable. Any remaining nonmarketable portion of the order is
displayed at its original user-specified limit price. If, however,
a cap does exist on the number of price levels at which an
intermarket sweep limit order can contemporaneously route, then the
remaining quantity of the order is capped at the last (most
aggressive) price at which it routed, if the order's price is
superior to the last routed price. For example, if an intermarket
sweep limit order is priced at four ticks through the NBBO but is
only allowed to route up to two ticks beyond the NBBO, then its
remaining portion is capped at two ticks inferior to the NBBO and
displayed at that price. The order is inserted in the Display Order
Process of the internal order book 29a and ranked according to the
price/time priority of its capped price. The order is also
disseminated to the public order book at its capped price.
Accordingly, the posted order crosses the NBBO, but only to the
extent to which it does not lock the price of any away market 24
that has not been fully satisfied.
Once posted, whether capped or not, an intermarket sweep limit
order stands it ground and does not route when an away market 24
locks or crosses it. Similarly, once an intermarket sweep limit
order has satisfied its obligation to an away market 24, it does
not route additional contracts when the away market fills the
routed order.
If, however, the NBBO moves away from a capped intermarket sweep
limit order, then the process removes the cap, and allows the order
to revert to its original user-specified limit price. The repriced
order loses its standing in the internal order book 29a and is
processed as if it were a new incoming order. After the intermarket
sweep limit order can execute no further, if its price would still
cross the market excessively, i.e., if it would lock the price of
an away market that it has not fully satisfied, then it is
automatically capped again at the last price at which it routed.
This process continues until the intermarket sweep limit order is
depleted, or else can be displayed at its original user-specified
limit price without crossing the market excessively. Once the
intermarket sweep limit order is displayed at its original
user-specified price, it is never capped again.
Posted customer intermarket sweep limit orders that are priced at
the NBBO (whether repriced or not) are eligible to execute against
incoming marketable orders in the LMM Guarantee Process or the
Directed Order Process, like any other displayed order type, if
they have time priority over the eligible market maker quote.
An incoming intermarket sweep limit order that is executable at the
opposite side of the NBBO will participate in the LMM Guarantee
Process if the lead market maker is quoting at the opposite side of
the NBBO. Similarly, if the business rules of the market center 20
allow intermarket sweep limit orders to be directed to a specific
market maker, then an incoming intermarket sweep limit order that
is executable at the opposite side of the NBBO will participate in
the Directed Order Process if the designated market maker is
quoting at the opposite side of the NBBO.
Incoming Intermarket Sweep Limit Buy Order Received Process
Referring now to FIGS. 14A-14B, the process is illustrated where
the order matching engine 21 receives an incoming intermarket sweep
limit buy order. In this embodiment, an intermarket sweep limit buy
order can execute contemporaneously with as many price levels as
are allowed according to the marketplace rules in effect. If there
is a cap on the number of price levels at which the order can
route, then after satisfying all away markets that are eligible to
receive the routed order, any remaining quantity immediately
crosses the NBO, capped at the last price at Which it routed. Once
capped and posted, if the NBO subsequently moves away to a higher
price, then the cap is removed and the order is allowed to execute
further.
In step 1402, the process retrieves the NBO, and in step 1404, the
process determines if the incoming intermarket sweep limit buy
order is marketable. If the process determines that the incoming
intermarket sweep limit buy order is marketable, then the process
continues to step 1405, where it initiates the "Too-Executable Buy
Order Check Process," and proceeds to step 1600 in FIG. 16. If the
incoming buy order is not canceled in the "Too-Executable Buy Order
Check Process," i.e., it is not determined to be too executable,
then the process continues to step 1406, where it creates a virtual
consolidated order and quote list for the option series.
The process continues to step 1408, where it checks if the option
series has any assigned market makers. If it does, then the process
continues to step 1410, where it checks if the incoming intermarket
sweep limit buy order is a directed order or not. If the incoming
intermarket sweep limit buy order is a directed order, then the
process continues to step 1414 where the "Directed Order Process"
is initiated in step 2000 in FIG. 20A. If, however, the incoming
intermarket sweep limit buy order is not a directed order, then the
process proceeds to step 1412 where the "LMM Guaranteed Offer
Process" is initiated instead in step 1900 in FIG. 19.
Regardless of whether the incoming intermarket sweep limit buy
order executes in the Directed Order Process, in the LMM Guaranteed
Offer Process, or in neither process (if the applicable market
maker is not quoting at the NBO and is therefore ineligible for a
guaranteed entitlement, or else if the issue does not have any
assigned market makers), if the incoming intermarket sweep limit
buy order still has quantity available to trade, then the process
continues to step 1416, where it retrieves the best offer in the
virtual consolidated order and quote list, i.e., the sell order,
market maker quote, or disseminated away market quote with the
highest ranking. In step 1418, the process checks if the incoming
intermarket sweep limit buy order is still marketable (by way of
explanation, it is possible that it is no longer marketable if the
quotes and orders at the NBO were exhausted).
At step 1418, if the process determines that the incoming
intermarket sweep limit buy order is still marketable, then it
continues to step 1420, where it checks if the retrieved best offer
is on or off the market center 20. If the retrieved best offer is
on the market center 20, then the process continues to step 1422,
where if the retrieved best offer is a market maker quote, the
process automatically generates an IOC sell pseudo-order on behalf
of the underlying market maker quote. The process continues to step
1424, where it matches the incoming intermarket sweep limit buy
order against the retrieved sell order or pseudo-order, at the sell
order's price. If the matched sell order is a pseudo-order, then in
step 1426, the process notifies the market maker quote engine 32b
of the quantity that was executed so that the market maker quote
engine 32b can decrement the underlying market maker quote.
The process continues to step 1428, where it checks if the incoming
intermarket sweep limit buy order still has quantity available to
trade. If it does not, then the process continues to step 1430,
where it terminates as indicated. If, however, the incoming
intermarket sweep limit buy order does still have remaining
quantity, then the process returns to step 1416, where it retrieves
the next-best offer in the virtual consolidated order and quote
list and continues to step 1418, where it checks if the incoming
intermarket sweep limit buy order is still marketable. The process
continues to execute the incoming intermarket sweep limit buy order
against all resident trading interest at the NBO as described
above, until the incoming intermarket sweep limit buy order is
depleted, or else until the retrieved best offer is an away market
quote, as described next.
Returning to step 1420, if the retrieved best offer is an away
market quote, then the process continues to step 1436, where it
checks if there is a cap on the number of price levels at which an
intermarket sweep limit order can contemporaneously route. If such
a restriction does exist, then the process continues to step 1438,
where it retrieves the stored "Intermarket Sweep Cap" parameter
from the Routing Process. In step 1440, the process computes the
maximum price at which the intermarket sweep limit buy order can
route ("MaxPriceOffNBO") by adding a price equivalent to the number
of ticks specified in the retrieved "Intermarket Sweep Cap"
parameter to the current NBO price. By way of example, if the
minimum price increment for an issue is a nickel and the
Intermarket Sweep Cap is set to `2,` then the MaxPriceOffNBO is the
NBO plus ten cents. If the minimum price increment for an issue is
a penny and the Intermarket Sweep Cap is set to `2,` then the
MaxPriceOffNBO is the NBO plus two cents. In step 1442, the process
checks if the retrieved away market offer price is higher than the
derived MaxPriceOffNBO. If the away market offer price is less than
or equal to the MaxPriceOffNBO, then it is eligible to receive a
routed order, and the process continues to step 1444, where the
process releases the incoming intermarket sweep limit buy order to
the Routing Process, which routes to the highest-ranking away
market as appropriate, up to its disseminated offer size, at the
disseminated offer price.
Returning to step 1436, if, however, there is no cap on the number
of price levels at which an intermarket sweep limit order can
contemporaneously route, then the process also continues to step
1444.
After routing to the away market, the process continues to step
1428, where it checks if the incoming intermarket sweep limit buy
order still has quantity available to trade. If the order is
depleted, then the process terminates in step 1430 as indicated.
If, however, the order still has remaining quantity, then it
returns to step 1416, where it retrieves the next best offer, and
if the incoming intermarket sweep limit buy order is marketable
against the next best offer, will continue to match the resident
order or quote or route to the away market quote, as just
described.
At each price level, the incoming intermarket sweep limit buy order
matches the displayed trading interest, then matches the
nondisplayed ("Working") interest, then routes to the away market
interest. Only after all away markets at the current price level
have been satisfied does the incoming intermarket sweep limit buy
order proceed to execute with the trading interest at the next-best
price level. The process repeats these steps for each price level
allowed, until the incoming intermarket sweep limit buy order is
depleted, or until the retrieved best offer is inferior to the
MaxPriceOffNBO, as described next.
Returning to step 1442, if the away market's offer price is higher
than the MaxPriceOffNBO, then the incoming intermarket sweep limit
buy order cannot route to it at the present time, and any remaining
quantity must be posted. The process continues to step 1446, where
it caps the incoming intermarket sweep limit buy order at the last
price at which it routed. The last routed price will cross the NBO,
but only to the extent to which it locks the disseminated offer
prices of all the away markets that the intermarket sweep limit buy
order satisfied. Specifically, the capped order will not lock the
offer price of any away market where the obligation to the quote
has not been fully satisfied. The process continues to step 1448,
where it ranks the capped intermarket sweep limit buy order in the
internal order book 29a in the Display Order Process according to
the price/time priority of its capped price, i.e., the last price
at which it routed. The process also disseminates the capped order
to the public order book at its current (capped) price. The posted
intermarket sweep limit buy order crosses the market.
Continuing to step 1450, if the NBO price should move higher, then
the capped intermarket sweep limit buy order can execute further.
The process removes the cap, and allows the intermarket sweep limit
buy order to revert to its original user-specified limit price. The
repriced order loses its standing in the internal order book 29a,
and is processed as if it were a new incoming order. Accordingly,
the process returns to step 1402, and the intermarket sweep limit
buy order is allowed to execute further at its more aggressive
price. If the order still has quantity remaining but once again can
execute no further, then at step 1446, the process caps the order
at the last price at which it routed, and posts it again at step
1448. This process is repeated until the intermarket sweep limit
buy order is depleted, or else the NBO moves away to the extent to
which the order can be posted at its original user-specified price.
Once the order is posted at its original user-specified limit
price, it is never capped again. The process then terminates in
step 1452 as indicated.
Returning to step 1404, if, however, the incoming intermarket sweep
limit buy order was never marketable, then the process continues to
step 1432, where it ranks the order in the Display Order Process of
the internal order book 29a according to price/time priority, and
disseminates the order to the public order book. As the
nonmarketable order is ranked at its original limit price, it is
not affected when the NBO changes. The process then terminates in
step 1434 as indicated.
Returning to step 1418, if, however, the incoming intermarket sweep
limit buy order is no longer marketable, then the process continues
to step 1432 and 1434 as just described.
Incoming Intermarket Sweep Limit Sell Order Received Process
Referring now to FIGS. 15A-15B, the process is illustrated where
the order matching engine 21 receives an incoming intermarket sweep
limit sell order. This routine is very similar to the process
described above in FIGS. 14A-14B for receiving an incoming
intermarket sweep limit buy order.
In step 1502, the process retrieves the NBB, and in step 1504, the
process determines if the incoming intermarket sweep limit sell
order is marketable. If the process determines that the incoming
intermarket sweep limit sell order is marketable, then the process
continues to step 1505, initiates the "Too-Executable Sell Order
Check Process," and proceeds to step 1700 in FIG. 17. If the
incoming sell order is not canceled in the "Too-Executable Sell
Order Check Process," i.e., it is not determined to be too
executable, then the process continues to step 1506, where it
creates a virtual consolidated order and quote list for the option
series.
The process continues to step 1508, where it checks if the option
series has any assigned market makers. If it does, then the process
continues to step 1510, where it checks if the incoming intermarket
sweep limit sell order is a directed order or not. If the incoming
intermarket sweep limit sell order is a directed order, then the
process continues to step 1514 where the "Directed Order Process"
is initiated in step 2000 in FIG. 20A, If, however, the incoming
intermarket sweep limit sell order is not a directed order, then
the process proceeds to step 1512 where the "LMM Guaranteed Bid
Process" is initiated instead in step 1800 in FIG. 18.
Regardless of whether the incoming intermarket sweep limit sell
order executes in the Directed Order Process, in the LMM Guaranteed
Bid Process, or in neither process (if the applicable market maker
is not quoting at the NBB and is therefore ineligible for a
guaranteed entitlement, or else if the issue does not have any
assigned market makers), if the incoming intermarket sweep limit
sell order still has quantity available to trade, then the process
continues to step 1516, where it retrieves the best bid in the
virtual consolidated order and quote list, i.e., the buy order,
market maker quote, or disseminated away market quote with the
highest ranking. In step 1518, the process checks if the incoming
intermarket sweep limit sell order is still marketable (by way of
explanation, it is possible that it is no longer marketable if the
quotes and orders at the NBB were exhausted).
At step 1518, if the process determines that the incoming
intermarket sweep limit sell order is still marketable, then it
continues to step 1520, where it checks if the retrieved best bid
is on or off the market center 20. If the retrieved best bid is on
the market center 20, then the process continues to step 1522,
where if the retrieved best bid is a market maker quote, the
process automatically generates an IOC buy pseudo-order on behalf
of the underlying market maker quote. The process continues to step
1524, where it matches the incoming intermarket sweep limit sell
order against the retrieved buy order or pseudo-order, at the buy
order's price. If the matched buy order is a pseudo-order, then in
step 1526, the process notifies the market maker quote engine 32b
of the quantity that was executed so that the market maker quote
engine 32b can decrement the underlying market maker quote.
The process continues to step 1528, where it checks if the incoming
intermarket sweep limit sell order still has quantity available to
trade. If it does not, then the process continues to step 1530,
where it terminates as indicated. If, however, the incoming
intermarket sweep limit sell order does still have remaining
quantity, then the process returns to step 1516, where it retrieves
the next-best bid in the virtual consolidated order and quote list
and continues to step 1518, where it checks if the incoming
intermarket sweep limit sell order is still marketable. The process
continues to execute the incoming intermarket sweep limit sell
order against all resident trading interest at the NBB as described
above, until the incoming intermarket sweep limit sell order is
depleted, or else until the retrieved best bid is an away market
quote, as described next.
Returning to step 1520, if the retrieved best bid is an away market
quote, then the process continues to step 1536, where it checks if
there is a cap on the number of price levels at which an
intermarket sweep limit order can contemporaneously route. If such
a restriction does exist, then the process continues to step 1538,
where it retrieves the stored "Intermarket Sweep Cap" parameter
from the Routing Process. In step 1540, the process computes the
minimum price at which the intermarket sweep limit sell order can
route ("MaxPriceOffNBB") by subtracting the price equivalent to the
number of ticks specified in the retrieved "Intermarket Sweep Cap"
parameter from the current NBB price. By way of example, if the
minimum price increment for an issue is a nickel and the
Intermarket Sweep Cap is set to `2,` then the MaxPriceOffNBB is the
NBB less ten cents. If the minimum price increment for an issue is
a penny and the Intermarket Sweep Cap is set to `2,` then the
MaxPriceOffNBB is the NBB less two cents. In step 1542, the process
checks if the retrieved away market Bid price is lower than the
derived MaxPriceOffNBB. If the away market Bid price is greater
than or equal to the MaxPriceOffNBB, then it is eligible to receive
a routed order, and the process continues to step 1544, where the
process releases the incoming intermarket sweep limit sell order to
the Routing Process, which routes to the highest-ranking away
market as appropriate, up to its disseminated bid size, at the
disseminated bid price.
Returning to step 1536, if, however, there is no cap on the number
of price levels at which an intermarket sweep limit order can
contemporaneously route, then the process also continues to step
1544.
After routing to the away market, the process continues to step
1528, where it checks if the incoming intermarket sweep limit sell
order still has quantity available to trade. If the order is
depleted, then the process terminates in step 1530 as indicated.
If, however, the order still has remaining quantity, then it
returns to step 1516, where it retrieves the next best bid, and if
the incoming intermarket sweep limit sell order is marketable
against the next best bid, will continue to match the resident
order or quote or route to the away market quote, as just
described.
At each price level, the incoming intermarket sweep limit sell
order matches the displayed trading interest, then matches the
nondisplayed ("Working") interest, then routes to the away market
interest. Only after all away markets at the current price level
have been satisfied does the incoming intermarket sweep limit sell
order proceed to execute with the trading interest at the next-best
price level. The process repeats these steps for each price level
allowed, until the incoming intermarket sweep limit sell order is
depleted, or until the retrieved best bid is inferior to the
MaxPriceOffNBB, as described next.
Returning to step 1542, if the away market's bid price is lower
than the MaxPriceOffNBB, then the incoming intermarket sweep limit
sell order cannot route to it at the present time, and any
remaining quantity must be posted. The process continues to step
1546, where it caps the incoming intermarket sweep limit sell order
at the last price at which it routed. The last routed price will
cross the NBB, but only to the extent to which it locks the
disseminated bid prices of all the away markets that the
intermarket sweep limit sell order satisfied. Specifically, the
capped order will not lock the bid price of any away market where
the obligation to the quote has not been fully satisfied. The
process continues to step 1548, where it ranks the capped
intermarket sweep limit sell order in the internal order book 29a
in the Display Order Process according to the price/time priority
of its capped price, i.e., the last price at which it routed. The
process also disseminates the capped order to the public order book
at its current (capped) price. The posted intermarket sweep limit
sell order crosses the market.
Continuing to step 1550, if the NBB price should move lower, then
the capped intermarket sweep limit sell order can execute further.
The process removes the cap, and allows the intermarket sweep limit
sell order to revert to its original user-specified limit price.
The repriced order loses its standing in the internal order book
29a, and is processed as if it were a new incoming order.
Accordingly, the process returns to step 1502, and the intermarket
sweep limit sell order is allowed to execute further at its more
aggressive price. If the order still has quantity remaining but
once again can execute no further, then at step 1546, the process
caps the order at the last price at which it routed, and posts it
again at step 1548. This process is repeated until the intermarket
sweep limit sell order is depleted, or else the NBB moves away to
the extent to which the order can be posted at its original
user-specified price. Once the order is posted at its original
user-specified limit price, it is never capped again. The process
then terminates in step 1552 as indicated.
Returning to step 1504, if, however, the incoming intermarket sweep
limit sell order was never marketable, then the process continues
to step 1532, where it ranks the order in the Display Order Process
of the internal order book 29a according to price/time priority,
and disseminates the order to the public order book. As the
nonmarketable order is ranked at its original limit price, it is
not affected when the NBB changes. The process then terminates in
step 1534 as indicated.
Returning to step 1518, if, however, the incoming intermarket sweep
limit sell order is no longer marketable, then the process
continues to step 1532 and 1534 as just described.
Intermarket Sweep Limit Order Trading Example
In this example, the issue has an assigned lead market maker (LMM)
that is quoting at the NBO when a marketable incoming intermarket
sweep limit buy order is received. In this example, intermarket
sweep limit buy orders are allowed to route contemporaneously to
all away markets priced up to two ticks inferior to the NBO. The
intermarket sweep limit buy order executes in the LMM Guaranteed
Offer Process and the Display Order Process and then routes to the
away market at the NBO. After routing at the NBO, the incoming
intermarket sweep limit buy order contemporaneously executes with a
posted sell order whose price is one tick inferior to the NBO,
routes to an away market whose offer is one tick inferior to the
NBO, executes with a market maker quote priced at two ticks
inferior to the NBO, routes to an away market whose offer is two
ticks inferior to the NBO, and executes with a posted sell order
whose price is three ticks inferior to the NBO. The remaining
portion of the intermarket sweep limit buy order is capped at two
ticks inferior to the NBO, the last price at which it routed. When
the NBO moves away from the posted intermarket sweep limit buy
order, the order reverts to its user-specified price, and routes
again to an away market that is two ticks inferior to the new NBO.
The remaining portion of the intermarket sweep limit buy order is
automatically repriced and posted at two ticks inferior to the new
NBO, the last price at which it routed. The NBBO is 2.57 to 2.60
(70.times.110).
The away market BBO book 25a looks like this:
TABLE-US-00106 Bids Offers Away Market C: Bid 30 @ 2.57 Away Market
A: Offer 50 @ 2.60 Away Market B: Bid 40 @ 2.56 Away Market B:
Offer 40 @ 2.61 Away Market A: Bid 50 @ 2.55 Away Market C: Offer
30 @ 2.62 Away Market D: Bid 20 @ 2.55 Away Market D: Offer 20 @
2.63
The market maker quote book 33a looks like this:
TABLE-US-00107 Bids Offers MM2: Bid 30 @ 2.57 LMM: Offer 40 @ 2.60
LMM: Bid 40 @ 2.56 MM2: Offer 30 @ 2.62
The internal order book 29a looks like this. Order D is on behalf
of a customer, whereas Order E is not:
TABLE-US-00108 Bids Offers Order A: Buy 10 @ 2.57 Order D: Sell 10
@ 2.60 Order B: Buy 10 @ 2.55 Order E: Sell 10 @ 2.60 Order C: Buy
10 @ 2.52 Order F: Sell 10 @ 2.61 Order X: Sell 10 @ 2.63 Order Z:
Sell 10 @ 2.65
The market center BBO is 2.57 to 2.60 (40.times.60)
The public order book looks like this:
TABLE-US-00109 Bids Offers 40 @ 2.57 60 @ 2.60 40 @ 2.56 10 @ 2.61
10 @ 2.55 30 @ 2.62 10 @ 2.52 10 @ 2.63 10 @ 2.65
Incoming Marketable Intermarket Sweep Limit Buy Order is
Received
In step 1400, the order matching engine 21 receives the following
order: Order K: Buy 260 @ 2.65, Intermarket Sweep Limit In step
1402, the process retrieves the NBO (2.60). In step 1404, the
process checks if incoming Buy Order K is marketable, i.e., is
priced at or better than the NBO. As it is, the process continues
to step 1405, where it initiates the "Too-Executable Buy Order
Check Process," and proceeds to step 1600 in FIG. 16.
In step 1602, the process checks if incoming Buy Order K's price
(2.65) is higher than the NBO (2.60). As it is, the process
continues to step 1604, where it checks if intermarket sweep limit
orders should be checked for excessive marketability. As the check
for excessive marketability is enabled for intermarket sweep limit
orders in this embodiment, the process continues to step 1608,
where it retrieves the "MaxPercentOffNBBO" parameter, which is
configured to 15% in this example. It should be noted that the
minimum price increment (tick) for this issue is 0.01. In step
1610, the process computes the MaxPriceThruNBO by multiplying the
NBO (2.60) by the MaxPercentOffNBBO (15%), deriving the
MaxPriceThruNBO=0.39 (15% of 2.60=0.39). In step 1612, the process
computes the MaxBuyPrice by adding the derived MaxPriceThruNBO
(0.39) to the NBO (2.60), deriving the MaxBuyPrice of 2.99
(2.60+0.39=2.99). Accordingly, the highest price allowable for
incoming Buy Order K is 2.99. The process continues to step 1614,
where it checks if incoming Buy Order K's price (2.65) is higher
than the MaxBuyPrice (2.99). As it is not higher, incoming Buy
Order K does not need to be repriced or canceled, and the process
continues to step 1616, where it returns to the step where it was
originally invoked, back to step 1405.
The process continues to step 1406, where it combines the away
market BBO book 25a, the market maker quote book 33a, and the
internal order book 29a together in a virtual consolidated order
and quote list, which it ranks in price/display/time priority, but
with a preference for resident interest over away market interest
at the same price level. In this example, Sell Orders D and E were
received before the LMM Offer was quoted.
The virtual consolidated order and quote list looks like this:
TABLE-US-00110 Bids Offers MM2: Bid 30 @ 2.57 Order D: Sell 10 @
2.60 Order A: Buy 10 @ 2.57 Order E: Sell 10 @ 2.60 Away Market C:
Bid 30 @ 2.57 LMM: Offer 40 @ 2.60 LMM: Bid 40 @ 2.56 Away Market
A: Offer 50 @ 2.60 Away Market B: Bid 40 @ 2.56 Order F: Sell 10 @
2.61 Order B: Buy 10 @ 2.55 Away Market B: Offer 40 @ 2.61 Away
Market A: Bid 50 @ 2.55 MM2: Offer 30 @ 2.62 Away Market D: Bid 20
@ 2.55 Away Market C: Offer 30 @ 2.62 Order C: Buy 10 @ 2.52 Order
X: Sell 10 @ 2.63 Away Market D: Offer 20 @ 2.63 Order Z: Sell 10 @
2.65
The process continues to step 1408, where it checks if this issue
has any assigned market makers. As it does, the process continues
to step 1410, where it checks if incoming Buy Order K is a directed
order or not. As it is not a directed order, the process continues
to step 1412, where it initiates the "LMM Guaranteed Offer
Process," and proceeds to step 1900 in FIG. 19.
LMM Guarantee Process is in Effect for this Issue
In step 1902, the process retrieves the LMM Offer (40 @ 2.60). In
step 1904, it checks if the LMM Offer is at the NBO (2.60). As it
is, the lead market maker is entitled to guaranteed participation
with incoming Buy Order K, after any superior displayed customer
orders are executed first. The process continues to step 1908,
where it checks if incoming Buy Order K's order size (260) is
greater than two contracts. As it is, the process continues to step
1914.
Incoming Intermarket Sweep Limit Buy Order Matches the Displayed
Customer Sell Order with Time Priority Over the LMM Offer
In step 1914, the process checks if there are any customer sell
orders displayed at the NBO, and finds posted Sell Order D. The
process continues to step 1916, where it stores the timestamp on
the LMM Offer in the parameter "LMMOfferTimestamp." In step 1918,
the process retrieves the earliest displayed customer sell order at
the NBO, Sell Order D, and in step 1920, the process compares the
timestamp of posted Sell Order D to the LMMOfferTimestamp. As
posted Sell Order D was received earlier than the LMM Offer, the
process continues to step 1922, where it matches 10 contracts of
incoming Buy Order K with posted Sell Order D, completely depleting
posted Sell Order D and removing it from the books.
The process continues to step 1924, where it checks if incoming Buy
Order K still has quantity available to trade. As it still has 250
contracts remaining, the process continues to step 1928, where it
checks if there are any additional customer sell orders at the NBO.
As there are none (Sell Order E is not on behalf of a customer),
the process continues to step 1932.
Incoming Intermarket Sweep Limit Buy Order Matches the LMM
Offer
In step 1932, the process retrieves the LMMGuaranteedPercent
parameter, which is configured to 40% in this example. In step
1934, the process derives the LMMGuaranteedAllocation (100
contracts) by multiplying the LMMGuaranteedPercent (40%) by the
remaining portion of incoming Buy Order K (250 contracts). The
LMMGuaranteedAllocation is the maximum quantity of contracts that
can execute in the LMM Guarantee Process.
In step 1938, the process matches 40 contracts of incoming Buy
Order K against the LMM Offer, the lesser of the
LMMGuaranteedAllocation (100 contracts) and the LMM Offer size (40
contracts), at the NBO price of 2.60. It does this by generating an
IOC pseudo-order to Sell 40.RTM. 2.60 on behalf of the LMM Offer,
and executing incoming Buy Order K against the sell pseudo-order.
The LMM Offer at 2.60 is completely depleted, and is removed from
the virtual consolidated order and quote list. The process notifies
the market maker quote engine 32b to decrement the LMM Offer by the
40 contracts executed. The LMM Guaranteed Offer Process has
completed.
The virtual consolidated order and quote list now looks like
this:
TABLE-US-00111 Bids Offers MM2: Bid 30 @ 2.57 Order D: Sell 10 @
2.60 Order A: Buy 10 @ 2.57 Away Market A: Offer 50 @ 2.60 Away
Market C: Bid 30 @ 2.57 Order F: Sell 10 @ 2.61 LMM: Bid 40 @ 2.56
Away Market B: Offer 40 @ 2.61 Away Market B: Bid 40 @ 2.56 MM2:
Offer 30 @ 2.62 Order B: Buy 10 @ 2.55 Away Market C: Offer 30 @
2.62 Away Market A: Bid 50 @ 2.55 Order X: Sell 10 @ 2.63 Away
Market D: Bid 20 @ 2.55 Away Market D: Offer 20 @ 2.63 Order C: Buy
10 @ 2.52 Order Z: Sell 10 @ 2.65
The market maker quote engine 32b decrements the LMM Offer by the
40 contracts executed, completely depleting it. The market maker
quote book 33a now looks like this (the lead market maker will
manually replenish its offer, but this is not illustrated to
simplify the example):
TABLE-US-00112 Bids Offers MM2: Bid 30 @ 2.57 MM2: Offer 30 @ 2.62
LMM: Bid 40 @ 2.56
The internal order book 29a now looks like this:
TABLE-US-00113 Bids Offers Order A: Buy 10 @ 2.57 Order E: Sell 10
@ 2.60 Order B: Buy 10 @ 2.55 Order F: Sell 10 @ 2.61 Order C: Buy
10 @ 2.52 Order X: Sell 10 @ 2.63 Order Z: Sell 10 @ 2.65
The market center BBO is now 2.57 to 2.60 (40.times.10)
The public order book looks like this:
TABLE-US-00114 Bids Offers 40 @ 2.57 10 @ 2.60 .rarw. 40 @ 2.56 10
@ 2.61 10 @ 2.55 30 @ 2.63 10 @ 2.52 10 @ 2.63 10 @ 2.65
The process continues to step 1942, where it checks if incoming Buy
Order K still has any quantity available to trade. As it still has
210 contracts remaining, the process continues to step 1946, where
it returns to the step where the routine was originally invoked,
back to step 1412 of FIG. 14A.
Incoming Intermarket Sweep Limit Buy Order Matches the Non-Customer
Sell Order
The process continues to step 1416, where it retrieves the best
offer in the virtual consolidated order and quote list, which is
posted Sell Order E. In step 1418, the process checks if incoming
Buy Order K's price (2.65) is greater than or equal to posted Sell
Order E's price (2.60). As incoming Buy Order K's price is higher,
the process continues to step 1420, where it checks if posted Sell
Order E is on or off the market center 20. As it is a resident book
order, the process bypasses step 1422 and continues to step 1424,
where it matches 10 contracts of incoming Buy Order K against
posted Sell Order E, at Sell Order E's price of 2.60. Posted Sell
Order E is completely depleted and is removed from the books. The
NBBO is now 2.57 to 2.60 (70.times.50)
The virtual consolidated order and quote list now looks like
this:
TABLE-US-00115 Bids Offers MM2: Bid 30 @ 2.57 Away Market A: Offer
50 @ 2.60 Order A: Buy 10 @ 2.57 Order F: Sell 10 @ 2.61 Away
Market C: Bid 30 @ 2.57 Away Market B: Offer 40 @ 2.61 LMM: Bid 40
@ 2.56 MM2: Offer 30 @ 2.62 Away Market B: Bid 40 @ 2.56 Away
Market C: Offer 30 @ 2.62 Order B: Buy 10 @ 2.55 Order X: Sell 10 @
2.63 Away Market A: Bid 50 @ 2.55 Away Market D: Offer 20 @ 2.63
Away Market D: Bid 20 @ 2.55 Order Z: Sell 10 @ 2.65 Order C: Buy
10 @ 2.52
The internal order book 29a now looks like this:
TABLE-US-00116 Bids Offers Order A: Buy 10 @ 2.57 Order F: Sell 10
@ 2.61 Order B: Buy 10 @ 2.55 Order X: Sell 10 @ 2.63 Order C: Buy
10 @ 2.52 Order Z: Sell 10 @ 2.65
The market center BBO is now 2.57 to 2.61 (40.times.10)
The public order book looks like this:
TABLE-US-00117 Bids Offers 40 @ 2.57 10 @ 2.61 .rarw. 40 @ 2.56 30
@ 2.62 10 @ 2.55 10 @ 2.63 10 @ 2.52 10 @ 2.65
The process bypasses step 1426 and continues to step 1428, where it
checks if incoming Buy Order K still has any quantity available to
trade. As it still has 200 contracts remaining, the process returns
to step 1416 and retrieves the best offer in the virtual
consolidated order and quote list, which is Away Market A's offer.
In step 1418, the process checks if incoming Buy Order K's price
(2.65) is greater than or equal to Away Market A's offer (2.60). As
incoming Buy Order K's price is higher, the process continues to
step 1422, where it checks if Away Market A's offer is on or off
the market center 20. As it is an away market quote, the process
continues to step 1436.
Determine the Number of Price Levels at which the Incoming
Intermarket Sweep Limit Buy Order can Route Contemporaneously
In step 1436, the process checks if there is a cap on the number of
price levels at which an intermarket sweep limit order can
contemporaneously route to. If there is no restriction on the
number of price levels, then incoming Buy Order K would simply
match every order and route to every offer in the virtual
consolidated order and quote list, according to the ranked sequence
shown above, until the incoming order is exhausted. However, this
example illustrates how an intermarket sweep limit order behaves if
there is a cap on routing to multiple away markets at multiple
price levels. The process therefore retrieves the Intermarket Sweep
Cap parameter, which is set to two ticks in this example, in step
1438. Accordingly, incoming Buy Order K can contemporaneously route
to away markets at the NBO; at one tick inferior to the NBO; and at
two ticks inferior to the NBO. However, it cannot route to away
markets at three or more ticks inferior to the NBO.
Incoming Intermarket Sweep Limit Buy Order Routes to Away Market
Offer at the NBO
In step 1440, the process derives the highest price at which Buy
Order K can route (i.e., the "MaxPriceOffNBO") by adding two ticks
to the NBO. As the minimum price increment (tick) for this issue is
a penny, the MaxPriceOffNBO is 2.62 (2.60+0.02). In step 1442, the
process checks if Away Market A's offer (2.60) is greater than the
derived MaxPriceOffNBO (2.62). As Away Market A's offer price is
lower, the process continues to step 1444, where it allows the
Routing Process to determine the highest-ranking eligible away
market at the NBO. Away Market A is alone at the NBO. As no prior
orders have been routed to Away Market A in this example, the
process satisfies its full disseminated offer size by routing 50
contracts to Away Market A, at its disseminated offer price of
2.60.
After routing to Away Market A, the process returns to step 1428,
where it checks if incoming Buy Order K has any quantity still
available to trade. As it still has 150 contracts remaining, the
process returns to step 1416, where it retrieves the best offer in
the virtual consolidated order and quote list. As Away Market A's
offer has been completely satisfied, the best offer is now posted
Sell Order F. In step 1418, the process checks if incoming Buy
Order K's price (2.65) is greater than or equal to Sell Order F's
price (2.61). As Buy Order K's price is higher, the process
continues to step 1420, where it checks if Sell Order F is on or
off the market center 20.
Incoming Intermarket Sweep Limit Buy Order Executes
Contemporaneously with Sell Order Priced at One Tick Inferior to
the NBO
As Sell Order F is a book order, the process bypasses step 1422 and
continues to step 1424, where it matches 10 contracts of incoming
Buy Order K against posted Sell Order F, at Sell Order F's price of
2.61, completely depleting Sell Order F and removing it from the
books. The NBBO is still 2.57 to 2.60 (70.times.50)
The virtual consolidated order and quote list now looks like
this:
TABLE-US-00118 Bids Offers MM2: Bid 30 @ 2.57 Away Market A: Offer
50 @ 2.60 Order A: Buy 10 @ 2.57 Away Market B: Offer 40 @ 2.61
Away Market C: Bid 30 @ 2.57 MM2: Offer 30 @ 2.62 LMM: Bid 40 @
2.56 Away Market C: Offer 30 @ 2.62 Away Market B: Bid 40 @ 2.56
Order X: Sell 10 @ 2.63 Order B: Buy 10 @ 2.55 Away Market D: Offer
20 @ 2.63 Away Market A: Bid 50 @ 2.55 Order Z: Sell 10 @ 2.65 Away
Market D: Bid 20 @ 2.55 Order C: Buy 10 @ 2.52
The internal order book 29a now looks like this:
TABLE-US-00119 Bids Offers Order A: Buy 10 @ 2.57 Order X: Sell 10
@ 2.63 Order B: Buy 10 @ 2.55 Order Z: Sell 10 @ 2.65 Order C: Buy
10 @ 2.52
The market center BBO is now 2.57 to 2.62 (40.times.30)
The public order book looks like this:
TABLE-US-00120 Bids Offers 40 @ 2.57 30 @ 2.62 .rarw. 40 @ 2.56 10
@ 2.63 10 @ 2.55 10 @ 2.65 10 @ 2.52
The process bypasses step 1426 and continues to step 1428, where it
checks if incoming Buy Order K still has any quantity available to
trade. As it still has 140 contracts remaining, the process returns
to step 1416, and retrieves the best offer in the virtual
consolidated order and quote list. As Away Market A's offer has
been fully satisfied, the best offer is Away Market B's offer. In
step 1418, the process checks if incoming Buy Order K's price
(2.65) is greater than or equal to Away Market B's offer (2.61). As
incoming Buy Order K's price is higher, the process continues to
step 1420, where it checks if Away Market B's offer is on or off
the market center 20. As it is an away market quote, the process
continues to step 1436. As before, the Intermarket Sweep Cap
parameter of two ticks is retrieved at step 1438.
Incoming Intermarket Sweep Limit Buy Order Contemporaneously Routes
to an Away Market Priced at One Tick Inferior to the NBO
In step 1440, the process derives the highest price at which Buy
Order K can route (i.e., the "MaxPriceOffNBO") by adding two ticks
to the NBO. As the NBO is still 2.60, the MaxPriceOffNBO is still
2.62 (2.60+0.02). In step 1442, the process checks if Away Market
B's offer (2.61) is greater than the derived MaxPriceOffNBO (2.62).
As Away Market B's offer price is lower, the process continues to
step 1444, where it allows the Routing Process to determine the
highest-ranking eligible away market offering at the price of 2.61.
Away Market B is alone at the price of 2.61. As no prior orders
have been routed to Away Market B in this example, the process
satisfies its full disseminated offer size by routing 40 contracts
to Away Market B, at its disseminated offer price of 2.61.
After routing to Away Market B, the process returns to step 1428,
where it checks if incoming Buy Order K has any quantity still
available to trade. As it still has 100 contracts remaining, the
process returns to step 1416, where it retrieves the best offer in
the virtual consolidated order and quote list. As Away Market A's
offer and Away Market B's offer have both been completely
satisfied, the best offer is now the MM2 Offer. In step 1418, the
process checks if incoming Buy Order K's price (2.65) is greater
than or equal to the MM2 Offer price (2.62). As Buy Order K's price
is higher, the process continues to step 1420, where it checks if
the MM2 Offer is on or off the market center 20. As the offer is a
resident market maker quote, the process continues to step
1422.
Incoming Intermarket Sweep Limit Buy Order Contemporaneously
Executes with Market Maker Offer Priced at Two Ticks Inferior to
the NBO
In step 1422, the process generates an IOC pseudo-order to Sell 30
@ 2.62 on behalf of the underlying MM2 quote. In step 1424, the
process matches 30 contracts of incoming Buy Order K against the
sell pseudo-order, at the pseudo-order price of 2.62, completely
depleting the pseudo-order. The process removes the depleted MM2
Offer from the virtual consolidated order and quote list. In step
1426, the process notifies the market maker quote engine 32b that
30 contracts of the MM2 Offer executed so that the market maker
quote engine 32b can decrement the quote. The NBBO is still 2.57 to
2.60 (70.times.50)
The virtual consolidated order and quote list now looks like
this:
TABLE-US-00121 Bids Offers MM2: Bid 30 @ 2.57 Away Market A: Offer
50 @ 2.60 Order A: Buy 10 @ 2.57 Away Market B: Offer 40 @ 2.61
Away Market C: Bid 30 @ 2.57 Away Market C: Offer 30 @ 2.62 LMM:
Bid 40 @ 2.56 Order X: Sell 10 @ 2.63 Away Market B: Bid 40 @ 2.56
Away Market D: Offer 20 @ 2.63 Order B: Buy 10 @ 2.55 Order Z: Sell
10 @ 2.65 Away Market A: Bid 50 @ 2.55 Away Market D: Bid 20 @ 2.55
Order C: Buy 10 @ 2.52
The market maker quote engine 32b removes the depleted MM2 Offer.
The market maker quote book 33a now looks like this (both the LMM
and the MM2 will manually replenish their offers, but this is not
illustrated to simplify the example):
TABLE-US-00122 Bids Offers MM2: Bid 30 @ 2.57 LMM: Bid 40 @
2.56
The market center BBO is now 2.57 to 2.63 (40.times.10)
The public order book looks like this:
TABLE-US-00123 Bids Offers 40 @ 2.57 10 @ 2.63 .rarw. 40 @ 2.56 10
@ 2.65 10 @ 2.55 10 @ 2.52
The process continues to step 1428, where it checks if incoming Buy
Order K still has any quantity available to trade. As it still has
70 contracts remaining, the process returns to step 1416, and
retrieves the best offer in the virtual consolidated order and
quote list. As Away Market A and Away Market B have both been fully
satisfied, the best offer is Away Market C's offer. In step 1418,
the process checks if incoming Buy Order K's price (2.65) is
greater than or equal to Away Market C's offer (2.62). As incoming
Buy Order K's price is higher, the process continues to step 1420,
where it checks if Away Market C's offer is on or off the market
center 20. As it is an away market quote, the process executes
steps 1436 through 1440 as described above.
Incoming Intermarket Sweep Limit Buy Order Contemporaneously Routes
to an Away Market Quote Priced at Two Ticks Inferior to the NBO
In step 1442, the process checks if Away Market C's offer (2.62) is
greater than the derived MaxPriceOffNBO (2.62). As Away Market C's
offer price is equal to the MaxPriceOffNBO, the process continues
to step 1444, where it allows the Routing Process to determine the
highest-ranking eligible away market offering at 2.62. Away Market
C is alone at the price of 2.62. As no prior orders have been
routed to Away-Market C in this example, the process satisfies its
full disseminated offer size by routing 30 contracts to Away Market
C, at its disseminated offer price of 2.62.
After routing to Away Market C, the process returns to step 1428,
where it checks if incoming Buy Order K has any quantity still
available to trade. As it still has 40 contracts remaining, the
process returns to step 1416, where it retrieves the best offer in
the virtual consolidated order and quote list. As Away Markets A,
B, and C's offers have been completely satisfied, the best offer is
now posted Sell Order X. In step 1418, the process checks if
incoming Buy Order K's price (2.65) is greater than or equal to
Sell Order X's price (2.63). As Buy Order K's price is higher, the
process continues to step 1420, where it checks if Sell Order X is
on or off the market center 20.
Incoming Intermarket Sweep Limit Buy Order Executes
Contemporaneously with Sell Order Priced at Three Ticks Inferior to
the NBO
As Sell Order X is a book order, the process bypasses step 1422 and
continues to step 1424, where it matches 10 contracts of incoming
Buy Order K against posted Sell Order X, at Sell Order X's price of
2.63, completely depleting Sell Order X and removing it from the
books. The NBBO is still 2.57 to 2.60 (70.times.50)
The virtual consolidated order and quote list now looks like
this:
TABLE-US-00124 Bids Offers MM2: Bid 30 @ 2.57 Away Market A: Offer
50 @ 2.60 Order A: Buy 10 @ 2.57 Away Market B: Offer 40 @ 2.61
Away Market C: Bid 30 @ 2.57 Away Market C: Offer 30 @ 2.62 LMM:
Bid 40 @ 2.56 Away Market D: Offer 20 @ 2.63 Away Market B: Bid 40
@ 2.56 Order Z: Sell 10 @ 2.65 Order B: Buy 10 @ 2.55 Away Market
A: Bid 50 @ 2.55 Away Market D: Bid 20 @ 2.55 Order C: Buy 10 @
2.52
The internal order book 29a now looks like this:
TABLE-US-00125 Bids Offers Order A: Buy 10 @ 2.57 Order Z: Sell 10
@ 2.65 Order B: Buy 10 @ 2.55 Order C: Buy 10 @ 2.52
The market center BBO is now 2.57 to 2.65 (40.times.10)
The public order book looks like this:
TABLE-US-00126 Bids Offers 40 @ 2.57 10 @ 2.65 .rarw. 40 @ 2.56 10
@ 2.55 10 @ 2.52
The process bypasses step 1426 and continues to step 1428, where it
checks if incoming Buy Order K still has any quantity available to
trade. As it still has 30 contracts remaining, the process returns
to step 1416, and retrieves the best offer in the virtual
consolidated order and quote list. As Away Markets A, B, and C's
offers have been fully satisfied, the best offer is Away Market D's
offer. In step 1418, the process checks if incoming Buy Order K's
price (2.65) is greater than or equal to Away Market D's offer
(2.63). As incoming Buy Order K's price is higher, the process
continues to step 1420, where it checks if Away Market D's offer is
on or off the market center 20. As it is an away market quote, the
process executes steps 1436 through 1440 as previously described.
In step 1442, the process checks if Away Market D's offer price
(2.63) is greater than the derived MaxPriceOffNBO (2.62). As Away
Market D's offer price is indeed higher, incoming Buy Order K
cannot route to Away Market D, as it is too far off the NBO.
Incoming Intermarket Sweep Limit Buy Order is Capped at the Last
Price Routed, and is Posted
The process continues to step 1446, where it caps incoming Buy
Order K at the price of 2.62, which is the last price at which it
routed (to Away Market C). It does this by retaining incoming Buy
Order K's original limit price (2.65), but posting it at the last
routed price (2.62) so that it crosses the NBO, but only to the
extent to which it has fully satisfied the away markets whose offer
prices are being locked. By way of explanation, incoming Buy Order
K is allowed to lock Away Market A, B, and C's offer prices (2.60,
2.61, and 2.62 respectively) because it fully satisfied their
quotes, but it is not allowed to lock Away Market D's offer price
(2.63) because it has not routed to Away Market D, even though
incoming Buy Order K executed against posted Sell Order X at the
price of 2.63. As illustrated in this example, in this embodiment,
intermarket sweep limit orders, if they are capped, are capped at
the last price at which the order was routed, which is not
necessarily the same as the last price at which the incoming order
executed against the internal order book 29a. The process continues
to step 1448, where it ranks the remaining 30 contracts of incoming
Buy Order K in the Display Order Process of the internal order book
29a according to its capped price of 2.62, and disseminates Buy
Order K to the public order book. The NBBO is now 2.62 to 2.60
(30.times.50). The market is now crossed.
The virtual consolidated order and quote list now looks like
this:
TABLE-US-00127 Bids Offers Order K: Buy 30 @ 2.62 .rarw. Away
Market A: Offer 50 @ Original price = 2.65 2.60 MM2: Bid 30 @ 2.57
Away Market B: Offer 40 @ Order A: Buy 10 @ 2.57 2.61 Away Market
C: Bid 30 @ 2.57 Away Market C: Offer 30 @ LMM: Bid 40 @ 2.56 2.62
Away Market B: Bid 40 @ 2.56 Away Market D: Offer 20 @ Order B: Buy
10 @ 2.55 2.63 Away Market A: Bid 50 @ 2.55 Order Z: Sell 10 @ Away
Market D: Bid 20 @ 2.55 2.65 Order C: Buy 10 @ 2.52
The internal order book 29a now looks like this:
TABLE-US-00128 Bids Offers Order K: Buy 30 @ 2.62 .rarw. Order Z:
Sell 10 @ 2.65 Original price = 2.65 Order A: Buy 10 @ 2.57 Order
B: Buy 10 @ 2.55 Order C: Buy 10 @ 2.52
The market center BBO is now 2.62 to 2.65 (30.times.10)
The public order book looks like this:
TABLE-US-00129 Bids Offers 30 @ 2.62 .rarw. 10 @ 2.65 40 @ 2.57 40
@ 2.56 10 @ 2.55 10 @ 2.52
Away Markets Fill the Routed Orders but the Posted Intermarket
Sweep Limit Buy Order Does Not Ship Additional Quantity Away Market
A fills the 50 contracts routed to it Away Market B fills the 40
contracts routed to it Away Market C fills the 30 contracts routed
to it
An intermarket sweep limit order does not ship to an away market in
response to a fill. Accordingly, Buy Order K remains posted and
does not ship additional quantity to Away Markets A, B or C.
Away Market Fades its Offer, Changing the NBO Price
Away Market A fades its offer from the NBO The NBBO is now 2.62 to
2.61 (30.times.40). The market is still crossed.
The away market BBO book 25a looks like this:
TABLE-US-00130 Bids Offers Away Market C: Bid 30 @ 2.57 Away Market
B: Offer 40 @ 2.61 Away Market B: Bid 40 @ 2.56 Away Market C:
Offer 30 @ 2.62 Away Market A: Bid 50 @ 2.55 Away Market D: Offer
20 @ 2.63 Away Market D: Bid 20 @ 2.55 Away Market A: Offer 50 @
2.64 .rarw.
The quote engine 23a notifies the order matching engine 21 of the
change to Away Market A's offer and to the NBO. As described in
step 1450, as the NBO price has moved higher (it was previously
2.60, but is now 2.61), the process removes the cap from posted Buy
Order K, allowing it to revert to its original order price of 2.65,
and processes it as if it were a new incoming order, removing it
from the books.
Posted Intermarket Sweep Limit Buy Order's Cap is Removed, and the
Remaining Quantity is Processed Like a New Incoming Order
In step 1402, the process retrieves the new NBO (2.61). In step
1404, it checks if "incoming" uncapped Buy Order K's price (2.65,
its original price) is marketable, i.e., is at or better than the
NBO (2.61). As it is, the process continues to step 1405, where it
initiates the "Too-Executable Buy Order Check Process," and
proceeds to step 1600 in FIG. 16. Buy Order K is not "too
executable," as the MaxBuyPrice is now 3.00 (NBO price of
2.61+0.39=3.00). The process continues to step 1406, where it
creates a virtual consolidated order and quote list.
The virtual consolidated order and quote list looks like this:
TABLE-US-00131 Bids Offers MM2: Bid 30 @ 2.57 Away Market B: Offer
40 @ 2.61 Order A: Buy 10 @ 2.57 Away Market C: Offer 30 @ 2.62
Away Market C: Bid 30 @ 2.57 Away Market D: Offer 20 @ 2.63 LMM:
Bid 40 @ 2.56 Away Market A: Offer 50 @ 2.64 .rarw. Away Market B:
Bid 40 @ 2.56 Order Z: Sell 10 @ 2.65 Order B: Buy 10 @ 2.55 Away
Market A: Bid 50 @ 2.55 Away Market D: Bid 20 @ 2.55 Order C: Buy
10 @ 2.52
The process continues to step 1408, where it checks if this issue
has any assigned market makers. As it does, the process continues
to step 1410, where it checks if "incoming" uncapped Buy Order K is
a directed order or not. It should be noted that once an order is
posted, it is never treated as a directed order again, even if it
was originally sent as a directed order. As it is not a directed
order, the process continues to step 1412, to initiate the "LMM
Guaranteed Offer Process." However, as the LMM Offer is not
replenished in any of the examples of this document for ease of
illustration, the process continues to step 1416 instead.
Best Retrieved Offer is an Away Market Quote
In step 1416, the process retrieves the best offer in the virtual
consolidated order and quote list. As Away Market B's offer has
been fully satisfied and Away Market C's offer has been fully
satisfied and neither away market has updated its quote yet,
accordingly, the best offer is Away Market D's offer. In step 1418,
the process checks if "incoming" uncapped Buy Order K's price
(2.65) is greater than or equal to Away Market D's offer (2.63). As
Buy Order K's price is higher, the process continues to step 1420,
where it checks if Away Market D's offer is on or off the market
center 20. As it is an away market quote, the process continues to
step 1436.
Uncapped Intermarket Sweep Limit Buy Order Routes to an Away Market
Offer Priced at Two Ticks Inferior to the New NBO
The process executes steps 1436 and step 1438 as described above.
In step 1440, the process derives the highest price at which Buy
Order K can now route (i.e., the "MaxPriceOffNBO") by adding two
ticks to the new NBO. The newly derived MaxPriceOffNBO is 2.63
(2.61+0.02). In step 1442, the process checks if Away Market D's
offer (2.63) is greater than the derived MaxPriceOffNBO (2.63). As
Away Market D's offer price is equal to the MaxPriceOffNBO, the
process continues to step 1444, where it allows the Routing Process
to determine the highest-ranking eligible away market at the price
of 2.63. Away Market D is alone at the price of 2.63. As no prior
orders have been routed to Away Market D in this example, the
process satisfies its full disseminated offer size by routing 20
contracts to Away Market D, at its disseminated offer price of
2.63.
After routing to Away Market D, the process returns to step 1428,
where it checks if Buy Order K has any quantity still available to
trade. As it still has 10 contracts remaining, the process returns
to step 1416, where it retrieves the best offer in the virtual
consolidated order and quote list. As Away Markets B, C and D's
offers have been completely satisfied, the best offer is now Away
Market A's offer.
In step 1418, the process checks if uncapped Buy Order K's price
(2.65) is greater than or equal to Away Market A's offer (2.64). As
Buy Order K's price is higher, the process continues to step 1420,
where it checks if Away Market A's offer is on or off the market
center 20. As it is an away market quote, the process executes
steps 1436 through 1440 as previously described. In step 1442, the
process checks if Away Market A's offer price (164) is greater than
the derived MaxPriceOffNBO (2.63). As Away Market A's offer price
is indeed higher, Buy Order K cannot route to Away Market A, as it
is too far off the NBO.
Intermarket Sweep Limit Buy Order is Capped Again at the Last Price
Routed, and is Posted
The process continues to step 1446, where it once again caps Buy
Order K, this time at the price of 2.63, which is the last price at
which it routed (to Away Market D). It does this by retaining Buy
Order K's original limit price (2.65), but posting it at the last
routed price (2.63) so that it crosses the NBO, but only to the
extent to which it has fully satisfied the away markets whose offer
prices are being locked. The process continues to step 1448, where
it ranks the remaining 10 contracts of Buy Order K in the Display
Order Process of the internal order book 29a according to its newly
capped price of 2.63, and disseminates Buy Order K to the public
order book. The NBBO is now 2.63 to 2.61 (10.times.40). The market
is still crossed.
The virtual consolidated order and quote list now looks like
this:
TABLE-US-00132 Bids Offers Order K Buy 10 @ 2.63 .rarw. Away Market
B: Offer 40 @ Original Price = 2.65 2.61 MM2: Bid 30 @ 2.57 Away
Market C: Offer 30 @ Order A: Buy 10 @ 2.57 2.62 Away Market C: Bid
30 @ 2.57 Away Market D: Offer 20 @ LMM: Bid 40 @ 2.56 2.63 Away
Market B: Bid 40 @ 2.56 Away Market A: Offer 50 @ Order B: Buy 10 @
2.55 2.60 Away Market A: Bid 50 @ 2.55 Order Z: Sell 10 @ Away
Market D: Bid 20 @ 2.55 2.65 Order C: Buy 10 @ 2.52
The internal order book 29a now looks like this:
TABLE-US-00133 Bids Offers Order K: Buy 10 @ 2.63 .rarw. Order Z:
Sell 10 @ 2.65 Original price = 2.65 Order A: Buy 10 @ 2.57 Order
B: Buy 10 @ 2.55 Order C: Buy 10 @ 2.52
The market center BBO is now 2.63 to 2.65 (10.times.10)
The public order book looks like this:
TABLE-US-00134 Bids Offers 10 @ 2.63 .rarw. 10 @ 2.65 40 @ 2.57 40
@ 2.56 10 @ 2.55 10 @ 2.52
Incoming Sell Order Executes With Capped Intermarket Sweep Limit
Buy Order at Its Posted Price
The order matching engine 21 receives the following incoming order:
Order K2: Sell 10 @ Market When the order matching engine 21
receives a marketable incoming order, it creates a new virtual
consolidated order and quote list by combining the books as
previously described. As there have been no changes to the books in
the interim, they look exactly as they did at the conclusion of the
prior step. As the LMM's Bid (2.56) is inferior to the NBB (2.57),
incoming Sell Order K2 does not participate in the LMM Guaranteed
Bid Process. Instead, incoming Sell Order K2 matches posted Buy
Order K at its capped price of 2.63, completely depleting both
orders. The NBBO is now 2.57 to 2.61 (70.times.40). The market is
no longer crossed.
The virtual consolidated order and quote list now looks like
this:
TABLE-US-00135 Bids Offers MM2: Bid 30 @ 2.57 Away Market B: Offer
40 @ 2.61 Order A: Buy 10 @ 2.57 Away Market C: Offer 30 @ 2.62
Away Market C: Bid 30 @ 2.57 Away Market D: Offer 20 @ 2.63 LMM:
Bid 40 @ 2.56 Away Market A: Offer 50 @ 2.64 Away Market B: Bid 40
@ 2.56 Order Z: Sell 10 @ 2.65 Order B: Buy 10 @ 2.55 Away Market
A: Bid 50 @ 2.55 Away Market D: Bid 20 @ 2.55 Order C: Buy 10 @
2.52
The internal order book 29a now looks like this:
TABLE-US-00136 Bids Offers Order A: Buy 10 @ 2.57 Order Z: Sell 10
@ 2.65 Order B: Buy 10 @ 2.55 Order C: Buy 10 @ 2.52
The market center BBO is now 2.57 to 2.65 (40.times.10)
The public order book looks like this:
TABLE-US-00137 Bids Offers 40 @ 2.57 .rarw. 10 @ 2.65 40 @ 2.56 10
@ 2.55 10 @ 2.52
Away Market D fills the 20 contracts routed to it. Buy Order K is
completely filled. The virtual consolidated order and quote list is
deleted from local memory.
Routines Common to the Incoming Order Types
The section that follows includes the detailed descriptions of the
processing routines initiated by some or all of the different order
types of this embodiment. Incoming marketable stand-your-ground
inside limit buy orders, sweep limit buy-orders, and intermarket
sweep limit buy orders all initiate the "Too-Executable Buy Order
Check Process" described below in FIG. 16. Similarly, incoming
marketable stand-your-ground inside limit sell orders, sweep limit
sell orders, and intermarket sweep limit sell orders all initiate
the "Too-Executable Sell Order Check Process" described below in
FIG. 17.
The business rules of the market center 20 determine if a given
order type may be directed to a specific market maker or not. All
incoming marketable directed buy order types initiate the "Directed
Order Process" of FIG. 20A below and the "DMM Guaranteed Offer
Process" of FIG. 22 below if the incoming buy order is a directed
order, and if the order cannot execute as a directed order,
initiate the "LMM Guaranteed Offer Process" of FIG. 19 below
instead. Similarly, all incoming marketable directed sell order
types initiate the "Directed Order Process" of FIG. 20A below and
the "DMM Guaranteed Bid Process" of FIG. 21 below if the incoming
sell order is a directed order, and if the order cannot execute as
a directed order, initiate the "LMM Guaranteed Bid Process" of FIG.
18 below instead.
Too-Executable Buy Order Check Process
Referring now to FIG. 16, the "Too-Executable Buy Order Check
Process" is illustrated. The "Too-Executable Buy Order Check
Process" determines if an incoming buy order is "too executable,"
i.e., is priced so aggressively that it exceeds a predefined
allowable percentage through the published NBO quotation. In the
preferred embodiment, the predefined percentage is stored as a
configurable parameter "MaxPercentOffNBBO," which caps the highest
limit price allowed for an incoming buy order based on the current
NBO.
In step 1600, the "Too-Executable Buy Order Check Process" is
initiated when the order matching engine 21 receives an incoming
buy order that is marketable. In step 1602, the process compares
the incoming buy order's price to the NBO. If the incoming buy
order's price is not greater than the NBO, then the process
continues to step 1606, where it returns to the step where the
procedure was originally invoked, and the process terminates
because the incoming buy order is not "too executable." If,
however, in step 1602, the process determines that the incoming buy
order's price is greater than the NBO, then the process continues
to step 1604 instead.
In step 1604, the process checks if the check for excessive
marketability is enabled for the incoming buy order type. If the
incoming buy order type is not subject to the check for excessive
marketability, then the process also continues to step 1606, where
it returns to the step where the procedure was originally invoked,
and the process terminates because the incoming buy order is not
evaluated as to whether it is "too executable."
Returning to step 1604, if the process determines that the incoming
buy order is subject to the check for excessive marketability, then
it continues to step 1608, where it retrieves the parameter
"MaxPercentOffNBBO." Then, in step 1610, the process computes the
price interval allowed beyond the NBO for an incoming buy order
(the "MaxPriceThruNBO" parameter) by multiplying the current NBO
price by the MaxPercentOffNBBO. Accordingly, the MaxPriceThruNBO
parameter is computed as the stored percentage parameter times the
NBO price, rounded down to the nearest tick if necessary. For
example, if the NBO is 2.10 and the MaxPercentOffNBBO is 15%, then
the MaxPriceThruNBO parameter is 0.315, which would be rounded down
to 0.30 if the tick is a nickel at this price level. If the issue
trades in pennies, then it would be rounded down to 0.31 instead.
In step 1612, the process adds the computed MaxPriceThruNBO
parameter to the current NBO to derive the highest valid price for
the incoming buy order, i.e., the "MaxBuyPrice."
In step 1614, the process compares the price of the incoming buy
order to the derived MaxBuyPrice parameter. If the incoming buy
order's price is not higher than the MaxBuyPrice parameter, then
the incoming buy order is not "too executable," and is eligible for
further processing. In this case, the process continues to step
1616, where it returns to the step where the procedure was
originally initiated, as the process has determined that the
incoming buy order is not "too executable."
Returning to step 1614, if, however, the incoming buy order's price
is higher than the derived MaxBuyPrice parameter, then the incoming
buy order is presently "too executable," i.e., is priced too far
through the NBO. Accordingly, the incoming buy order is not allowed
to execute at this price, and must either be canceled or repriced
depending on the business rules of the market center 20. In step
1618, if the rules determine that the order must be canceled, then
the process continues to step 1620, where it cancels the incoming
buy order and terminates in step 1622, as indicated. If, however,
in step 1618 the business rules of the market center 20 determine
that the incoming buy order should be repriced less aggressively
instead of being canceled, then the process continues to step 1624,
where it caps the price of the incoming buy order at the derived
MaxBuyPrice parameter. The process continues to step 1626, where it
returns to the step where it was originally initiated, and the
process terminates because the repriced buy order is no longer "too
executable."
Too-Executable Sell Order Check Process
Referring now to FIG. 17, the "Too-Executable Sell Order Check
Process" is illustrated. The "Too-Executable Sell Order Check
Process" determines if an incoming sell order is "too executable,"
i.e., is priced so aggressively that it exceeds a predefined
allowable percentage through the published NBB quotation. In the
preferred embodiment, the predefined percentage is stored as a
configurable parameter "MaxPercentOffNBBO," which caps the lowest
limit price allowed for an incoming sell order based on the current
NBB.
In step 1700, the "Too-Executable Sell Order Check Process" is
initiated when the order matching engine 21 receives an incoming
sell order that is marketable. In step 1702, the process compares
the incoming sell order's price to the NBB. If the incoming sell
order's price is not lower than the NBB, then the process continues
to step 1706, where it returns to the step where the procedure was
originally invoked, and the process terminates because the incoming
sell order is not "too executable." If, however, in step 1702, the
process determines that the incoming sell order's price is lower
than the NBB, then the process continues to step 1704 instead.
In step 1704, the process checks if the check for excessive
marketability is enabled for the incoming sell order type. If the
incoming sell order type is not subject to the check for excessive
marketability, then the process also continues to step 1706, where
it returns to the step where the procedure was originally invoked,
and the process terminates because the incoming sell order is not
evaluated as to whether it is "too executable."
Returning to step 1704, if the process determines that the incoming
sell order is subject to the check for excessive marketability,
then it continues to step 1708, where it retrieves the parameter
"MaxPercentOffNBBO." Then, in step 1710, the process computes the
price interval allowed beyond the NBB for an incoming sell order
(the "MaxPriceThruNBB" parameter) by multiplying the current NBB
price by the MaxPercentOffNBBO. Accordingly, the MaxPriceThruNBB
parameter is computed as the stored percentage parameter times the
NBB price, rounded down to the nearest tick if necessary. For
example, if the NBB is 1.90 and the MaxPercentOffNBBO is 15%, then
the MaxPriceThruNBB parameter is 0.285, which would be rounded down
to 0.25 if the tick is a nickel at this price level. If the issue
trades in pennies, then it would be rounded down to 0.28 instead.
In step 1712, the process subtracts the computed MaxPriceThruNBB
parameter from the current NBB to derive the lowest valid price for
the incoming sell order, i.e., the "MinSellPrice."
In step 1714, the process compares the price of the incoming sell
order to the derived MinSellPrice parameter. If the incoming sell
order's price is not lower than the MinSellPrice parameter, then
the incoming sell order is not "too executable," and is eligible
for further processing. In this case, the process continues to step
1716, where it returns to the step where the procedure was
originally initiated, as the process has determined that the
incoming sell order is not "too executable."
Returning to step 1714, if, however, the incoming sell order's
price is lower than the derived MinSellPrice parameter, then the
incoming sell order is presently "too executable," i.e., is priced
too far through the NBB. Accordingly, the incoming sell order is
not allowed to execute at this price, and must either be canceled
or repriced depending on the business rules of the market center
20. In step 1718, if the rules determine that the order must be
canceled, then the process continues to step 1720, where it cancels
the incoming sell order and terminates in step 1722, as indicated.
If, however, in step 1718 the business rules of the market center
20 determine that the incoming sell order should be repriced less
aggressively instead of being canceled, then the process continues
to step 1724, where it caps the price of the incoming sell order at
the derived MinSellPrice parameter. The process continues to step
1726, where it returns to the step where it was originally
initiated, and the process terminates because the repriced sell
order is no longer "too executable."
The LMM Guaranteed Bid Process
Referring now to FIG. 18, the LMM Guaranteed Bid Process is
illustrated. At step 1800, the process is initiated. At step 1802,
the process retrieves the lead market maker's bid. In step 1804,
the process checks if the lead market maker's bid is at the NBB
price. If the lead market maker's bid is inferior to the NBB, then
the lead market maker is not entitled to guaranteed participation
with the incoming sell order, and the process continues to step
1806, where it returns to the step where it was originally
invoked.
Returning to step 1804, if, however, the lead market maker's bid is
at the NBB, then the lead market maker is entitled to guaranteed
participation with the incoming sell order. The process proceeds to
step 1808, where it checks if the incoming sell order's size is
greater than two contracts. If it is less than or equal to two
contracts, then the process continues to step 1809, where it
matches the incoming sell order with one contract of the lead
market's bid, at the NBB price. It does this by generating an
immediate or cancel ("IOC") buy pseudo-order on behalf of the
underlying lead market maker bid, and executing the incoming sell
order against the buy pseudo-order. After executing the buy
pseudo-order, the order matching engine notifies the market maker
quote engine 32b of the quantity of contracts that executed (one
contract) so that it can decrement the lead market maker's bid.
Then at step 1810, the process checks if the incoming sell order
still has one contract available to trade. If it does not, then the
process terminates in step 1812 as indicated. If it does, then the
process continues to step 1811, where it matches the single
remaining contract of the incoming sell order with one contract of
the best displayed bid. The best displayed bid is the buy order or
quote with the highest ranking in the Display Order Process
according to price/time priority. The process terminates in step
1812 as indicated.
Returning to step 1808, if, however, the incoming sell order has
more than two contracts available to execute, then the process, in
this embodiment, determines if there are any customer orders that
are eligible to execute ahead of the lead market maker's bid.
Accordingly, the process proceeds to step 1814, where it checks if
there are any displayed customer buy orders at the NBB.
If there are no displayed customer buy orders at the NBB, then the
lead market maker is entitled to participate immediately with the
incoming sell order. The process proceeds to step 1832, where it
retrieves a stored, configurable guaranteed allocation parameter
determined by the market center's business rules
("LMMGuaranteedPercent"). At step 1834, the process computes the
maximum quantity of contracts that the lead market maker is
guaranteed for execution ("LMMGuaranteedAllocation") by multiplying
the remaining ("Leaves") quantity of the incoming sell order by the
LMMGuaranteedPercent parameter, and rounding the result down to the
nearest integer value if necessary. In step 1838, the process
matches the incoming sell order with the lead market maker's bid,
at the NBB price, up to the lesser of the computed
LMMGuaranteedAllocation size and the lead marker maker bid size. It
does this by generating an IOC buy pseudo-order on behalf of the
underlying lead market maker bid, and executing the incoming sell
order against the buy pseudo-order. After executing the buy
pseudo-order, the order matching engine notifies the market maker
quote engine 32b of the quantity of contracts that executed so that
it can decrement the lead market maker's bid.
In step 1842, the process checks if the incoming sell order still
has any contracts available to trade. If the incoming sell order
has been completely executed, then the process terminates in step
1844 as indicated. However, if the incoming sell order still has
contracts available to trade, then the process returns to the step
where it was originally invoked, so that the incoming sell order
can continue to execute against other bids if possible. The LMM
Guaranteed Bid Process is completed, and any remaining quantity of
the incoming sell order is released to the Display Order
Process.
Returning to step 1814, if, however, there are displayed customer
buy orders at the NBB, then the process continues to step 1816,
where it retrieves the timestamp assigned to the lead market
maker's bid (the time assigned by the market maker quote engine
32b) and stores it in the parameter "LMMBidTimestamp." In step
1818, the process retrieves the earliest displayed customer buy
order at the NBB. In step 1820, the process compares the timestamp
of the retrieved customer buy order with the LMMBidTimestamp
parameter, and if the customer buy order preceded the lead market
maker's bid, then the process continues to step 1822, where it
matches the incoming sell order with the retrieved customer buy
order at the NBB price.
In step 1824, the process checks if the incoming sell order still
has contracts available to trade. If it does not, then the process
terminates in step 1826 as indicated. If it does, then the process
continues to step 1828, where it checks if there are any additional
displayed customer buy orders priced at the NBB. If there are
additional customer orders, then in step 1830, the process
retrieves the next earliest displayed customer buy order at the NBB
and returns to step 1820, where it checks if the newly-retrieved
customer buy order was received prior to the lead market maker's
bid. It repeats this process until all customer buy orders with
price/time priority over the lead market maker's bid have been
matched, unless the incoming sell order is exhausted first.
Returning to step 1820, if, however, the timestamp of the retrieved
customer buy order is not lower than the LMMBidTimestamp, then the
customer order was not received prior to the lead market maker's
bid, and is therefore not eligible to execute in the LMM Guaranteed
Bid Process. In this case, the process proceeds to step 1832, and
executes the lead market maker guaranteed allocation according to
steps 1832 through 1844 (or 1846) as described above.
Returning to step 1828, if, however, there are no additional
displayed customer buy orders at the NBB, then the process also
proceeds to step 1832 at this point, and executes the lead market
maker guaranteed allocation according to steps 1832 through 1844
(or 1846) as described above.
The LMM Guaranteed Offer Process
Referring now to FIG. 19, the LMM Guaranteed Order Process is
illustrated. At step 1900, the process is initiated. At step 1902,
the process retrieves the lead market maker's offer. In step 1904,
the process checks if the lead market maker's offer is at the NBO
price. If the lead market maker's offer is inferior to the NBO,
then the lead market maker is not entitled to guaranteed
participation with the incoming buy order, and the process
continues to step 1906, where it returns to the step where it was
originally invoked.
Returning to step 1904, if, however, the lead market maker's offer
is at the NBO, then the lead market maker is entitled to guaranteed
participation with the incoming buy order. The process proceeds to
step 1908, where it checks if the incoming buy order's size is
greater than two contracts. If it is less than or equal to two
contracts, then the process continues to step 1909, where it
matches the incoming buy order with one contract of the lead market
offer, at the NBO price. It does this by generating an immediate or
cancel ("IOC") sell pseudo-order on behalf of the underlying lead
market maker offer, and executing the incoming buy order against
the sell pseudo-order. After executing the sell pseudo-order, the
order matching engine notifies the market maker quote engine 32b of
the quantity of contracts that executed (one contract) so that it
can decrement the lead market maker's offer.
Then at step 1910, the process checks if the incoming buy order
still has one contract available to trade. If it does not, then the
process terminates in step 1912 as indicated. If it does, then the
process continues to step 1911, where it matches the single
remaining contract of the incoming buy order with one contract of
the best displayed offer. The best displayed offer is the sell
order or quote with the highest ranking in the Display Order
Process according to price/time priority. The process terminates in
step 1912 as indicated.
Returning to step 1908, if, however, the incoming buy order has
more than two contracts available to execute, then the process, in
this embodiment, determines if there are any customer orders that
are eligible to execute ahead of the lead market maker's offer.
Accordingly, the process proceeds to step 1914, where it checks if
there are any displayed customer sell orders at the NBO.
If there are no displayed customer sell orders at the NBO, then the
lead market maker is entitled to participate immediately with the
incoming buy order. The process proceeds to step 1932, where it
retrieves, a stored, configurable guaranteed allocation parameter
determined by the market center's business rules
("LMMGuaranteedPercent"). At step 1934, the process computes the
maximum quantity of contracts that the lead market maker is
guaranteed for execution ("LMMGuaranteedAllocation") by multiplying
the remaining ("Leaves") quantity of the incoming buy order by the
LMMGuaranteedPercent parameter, and rounding the result down to the
nearest integer value if necessary. In step 1938, the process
matches the incoming buy order with the lead market maker's offer,
at the NBO price, up to the lesser of the computed
LMMGuaranteedAllocation size and the lead marker maker offer size.
It does this by generating an IOC sell pseudo-order on behalf of
the underlying lead market maker offer, and executing the incoming
buy order against the sell pseudo-order. After executing the sell
pseudo-order, the order matching engine notifies the market maker
quote engine 32b of the quantity of contracts that executed so that
it can decrement the lead market maker's offer.
In step 1942, the process checks if the incoming buy order still
has any contracts available to trade. If the incoming buy order has
been completely executed, then the process terminates in step 1944
as indicated. However, if the incoming buy order still has
contracts available to trade, then the process returns to the step
where it was originally invoked, so that the incoming buy order can
continue to execute against other offers if possible. The LMM
Guaranteed Offer Process is completed, and any remaining quantity
of the incoming buy order is released to the Display Order
Process.
Returning to step 1914, if, however, there are displayed customer
sell orders at the NBO, then the process continues to step 1916,
where it retrieves the timestamp assigned to the lead market
maker's offer (the time assigned by the market maker quote engine
32b) and stores it in the parameter "LMMOfferTimestamp." In step
1918, the process retrieves the earliest displayed customer sell
order at the NBO. In step 1920, the process compares the timestamp
of the retrieved customer sell order with the LMMOfferTimestamp
parameter, and if the customer sell order preceded the lead market
maker's offer, then the process continues to step 1922, where it
matches the incoming buy order with the retrieved customer sell
order at the NBO price.
In step 1924, the process checks if the incoming buy order still
has contracts available to trade. If it does not, then the process
terminates in step 1926 as indicated. If it does, then the process
continues to step 1928, where it checks if there are any additional
displayed customer sell orders priced at the NBO. If there are
additional customer orders, then in step 1930, the process
retrieves the next earliest displayed customer sell order at the
NBO and returns to step 1920, where it checks if the
newly-retrieved customer sell order was received prior to the lead
market maker's offer. It repeats this process until all customer
sell orders with price/time priority over the lead market maker's
offer have been matched, unless the incoming buy order is exhausted
first.
Returning to step 1920, if however, the timestamp of the retrieved
customer sell order is not lower than the LMMOfferTimestamp, then
the customer order was not received prior to the lead market
maker's offer, and is therefore not eligible to execute in the LMM
Guaranteed Offer Process. In this case, the process proceeds to
step 1932, and executes the lead market maker guaranteed allocation
according to steps 1932 through 1944 (or 1946) as described
above.
Returning to step 1928, if, however, there are no additional
displayed customer sell orders at the NBO, then the process also
proceeds to step 1932 at this point, and executes the lead market
maker guaranteed allocation according to steps 1932 through 1944
(or 1946) as described above.
The Directed Order Process
Referring now to FIGS. 20A-208, the Directed Order Process is
illustrated. When the market center 20 receives a directed order,
it must first determine if the order sending firm 26 is
permissioned to direct orders to the designated market maker firm
31. At step 2000, the process is initiated. At step 2002, the
process sets the parameter designated as "OSF" to the order sending
firm identification ("ID") included on the incoming directed order.
Then, at step 2004, the process retrieves a designated market
maker/order sending firm ("DMM/OSF") permissions table, similar to
the exemplary one depicted in FIG. 20B.
At step 2006, the process checks if the incoming directed order
includes the ID of a designated market maker, i.e., a specific
market maker firm that is the intended recipient of this directed
order. If a designated market maker is not specified, then the
process continues to step 2012, where it consults the DMM/OSF
permissions table to see if a default designated market maker has
been established for this order sending firm. If no default market
maker has been established in the DMM/OSF permissions table, then
the incoming order cannot execute in the Directed Order Process,
but it may be able to execute in one of the LMM Guarantee Processes
instead. Accordingly, the process continues to step 2013, where it
checks if the incoming order is a buy or sell. If the incoming
order is a buy order, then the process continues to step 2014,
where it initiates the LMM Guaranteed Offer Process. After the LMM
Guaranteed Offer Process is complete, the process then continues to
step 2030, where it returns to the step where the routine was
originally initiated. If, however, the incoming order is a sell
order, then the process continues to step 2015, where it initiates
the LMM Guaranteed Bid Process. After the LMM Guaranteed Bid
Process is complete, the process then continues to step 2032, where
it returns to the step where the routine was originally
initiated.
Referring again to step 2006, if the directed order includes the ID
of a designated market maker, then the process, at step 2008,
assigns the designated market maker ID to the parameter "DMM." At
step 2010, the process consults the DMM/OSF permissions table to
determine if a rule exists for this DMM/OSF pair. If a rule does
not exist, then this order sending firm 26 is not permissioned to
send directed orders to this designated market maker. In this case,
the incoming order cannot execute in the Directed Order Process,
but it may be able to execute in a LMM Guarantee Process instead.
Accordingly, the process continues to step 2013 where it checks if
the incoming order is a buy order or a sell order and then proceeds
as described in the steps above.
Referring again to step 2010, however, if a rule does exist for the
DMM/OSF pair, then this order sending firm 26 is permissioned to
send directed orders to the designated market maker 31, That being
the case, the process continues to step 2018, where it checks if
the incoming directed order is a buy order or a sell order.
Referring again to step 2012, if the process determines that a
default designated market maker exists for the order sending firm
sending the order, then the process, at step 2016 sets the
parameter designated as "DMM" to the default market maker ID and
continues to step 2018. At step 2018, the process determines
whether the incoming directed order is a buy order or a sell order.
If the directed order is a buy order, then the process proceeds to
step 2020, where the DMM Guaranteed Offer Process is initiated, and
the process proceeds to step 2200 (FIG. 22). After the DMM
Guaranteed Offer Process is complete, the process proceeds to step
2022 where it returns to the step where the routine was originally
initiated. If, on the other hand, the directed order is a sell
order, then the process proceeds to step 2024, where the DMM
Guaranteed Bid Process is initiated, and the process proceeds to
step 2100 (FIG. 21). After the DMM Guaranteed Bid Process is
complete, the process proceeds to step 2026 where it returns to the
step where the routine was originally initiated.
The DMM Guaranteed Bid Process
Where the process has determined that an incoming sell order was
sent by an order sending firm 26 that is permissioned to send
directed orders to a market maker firm 31, the DMM Guaranteed Bid
Process is activated as indicated at step 2100 (FIG. 21). FIG. 21
illustrates a routine wherein the order matching engine 21 executes
the incoming directed sell order in the Directed Order Process, but
only if the designated market maker's bid is at the NBB. The DMM
Guaranteed Bid Process is very similar to the previously described
LMM Guaranteed Bid Process, as the designated market maker in this
situation receives the same privileges as the lead market maker for
the purpose of executing with the incoming directed order.
At step 2102, the process retrieves the designated market maker's
bid. In step 2104, the process checks if the designated market
maker's bid is at the NBB price. If the designated market maker's
bid is inferior to the NBB, then the designated market maker is not
entitled to guaranteed participation with the incoming directed
sell order. However, the lead market maker may still be entitled to
participate with the incoming order instead. Accordingly, the
process continues to step 2106, where the LMM Guaranteed Bid
Process is activated.
Returning to step 2104, if, however, the designated market maker's
bid is at the NBB, then the designated market maker is entitled to
guaranteed participation with the incoming order. The process
proceeds to step 2108, where, in this embodiment, it checks if the
incoming directed sell order's size is greater than two contracts.
If it is less than or equal to two contracts, then the process
continues to step 2109, where it matches the incoming sell order
with one contract of the designated market maker's bid, at the NBB
price. It does this by generating an IOC buy pseudo-order on behalf
of the underlying designated market maker bid, and executing the
incoming sell order against the buy pseudo-order. After executing
the buy pseudo-order, the order matching engine notifies the market
maker quote engine 32b of the quantity of contracts that executed
(one contract) so that it can decrement the designated market
maker's bid.
In step 2110, the process checks if the incoming sell order still
has one contract available to trade. If it does not, then the
process terminates in step 2112 as indicated. If it does, then the
process continues to step 2111, where it matches the single
remaining contract of the incoming sell order with one contract of
the best displayed bid. The best displayed bid is the buy order or
quote with the highest ranking in the Display Order Process
according to price/time priority. The process terminates in step
2112 as indicated.
Returning to step 2108, if, however, the incoming directed sell
order has more than two contracts available to execute, then the
process must determine if there are any customer orders that are
eligible to execute ahead of the designated market maker's bid.
Accordingly, it proceeds to step 2114, where it checks if there are
any displayed customer buy orders at the NBB.
If there are no displayed customer buy orders at the NBB, then the
designated market maker is entitled to participate immediately with
the incoming directed sell order. The process proceeds to step
2132, where it retrieves a stored, configurable guaranteed
allocation parameter determined by the market center's business
rules ("DMMGuaranteedPercent"). In step 2134, the process computes
the maximum quantity of contracts that the designated market maker
is guaranteed for execution ("DMMGuaranteedAllocation") by
multiplying the remaining ("Leaves") quantity of the incoming
directed sell order by the DMMGuaranteedPercent parameter, and
rounding the result down to the nearest integer value if necessary.
In step 2138, the process matches the incoming sell order with the
designated market maker bid, at the NBB price, up to the lesser of
the computed DMMGuaranteedAllocation size and the designated market
maker bid size. It does this by generating an IOC buy pseudo-order
on behalf of the underlying designated market maker bid, and
executing the incoming sell order against the buy pseudo-order.
After executing the buy pseudo-order, the order matching engine
notifies the market maker quote engine 32b of the quantity of
contracts that executed so that it can decrement the designated
market maker's bid.
In step 2142, the process checks if the incoming directed sell
order still has any contracts available to trade. If the incoming
directed sell order has been completely executed, then the process
terminates in step 2144 as indicated. However, if the incoming
directed sell order still has contracts available to trade, then
the process continues to step 2146, where it returns to the step
where it was originally initiated, so that the incoming sell order
(no longer directed) can continue to execute against other bids if
possible. The DMM Guaranteed Bid Process is completed, and any
remaining quantity of the incoming sell order is released to the
Display Order Process.
Returning to step 2114, if, however, there are displayed customer
buy orders at the NBB, then the process continues to step 2116,
where it retrieves the timestamp assigned to the designated market
maker's bid (the time assigned by the market maker quote engine
32b) and stores it in the parameter "DMMBidTimestamp." In step
2118, the process retrieves the earliest displayed customer buy
order at the NBB. In step 2120, the process compares the timestamp
of the retrieved customer buy order with the DMMBidTimestamp
parameter, and if the customer buy order preceded the designated
market maker bid, then the process continues to step 2122, where it
matches the incoming directed sell order with the retrieved
customer buy order at the NBB price.
In step 2124, the process checks if the incoming directed sell
order still has contracts available to trade. If it does not, then
the process terminates in step 2126 as indicated. If it does, then
the process continues to step 2128, where it checks if there are
any additional displayed customer buy orders priced at the NBB. If
there are additional customer orders, then in step 2130, the
process retrieves the next earliest displayed customer buy order at
the NBB and returns to step 2120, where it checks if the
newly-retrieved customer buy order was received prior to the
designated market maker's bid. It repeats this process until all
customer buy orders with price/time priority over the designated
market maker's bid have been matched, unless the incoming directed
sell order is exhausted first.
Returning to step 2120, if, however, the timestamp of the retrieved
customer buy order is not lower than the DMMBidTimestamp, then the
customer order was not received prior to the designated market
makers bid, and is therefore not eligible to execute in the
Directed Order Process. In this case, the process proceeds to step
2132, and executes the designated market maker guaranteed
allocation according to steps 2132 through 2144 (or 2146) as
described above.
Returning to step 2128, if, however, there are no additional
displayed customer buy orders at the NBB, then the process also
proceeds to step 2132, and executes the designated market maker
guaranteed allocation according to steps 2132 through 2144 (or
2146) as described above.
The DMM Guaranteed Offer Process
Where the process has determined that an incoming buy order was
sent by an order sending firm 26 that is permissioned to send
directed orders to a market maker firm 31, the DMM Guaranteed Offer
Process is activated as indicated at step 2200 (FIG. 22). FIG. 22
illustrates a routine wherein the order matching engine 21 executes
the incoming directed buy order in the Directed Order Process, but
only if the designated market maker's offer is at the NBO. The DMM
Guaranteed Offer Process is very similar to the previously
described LMM Guaranteed Offer Process, as the designated market
maker in this situation receives the same privileges as the lead
market maker for the purpose of executing with the incoming
directed order.
At step 2202, the process retrieves the designated market maker's
offer. In step 2204, the process checks if the designated market
maker's offer is at the NBO price. If the designated market maker's
offer is inferior to the NBO, then the designated market maker is
not entitled to guaranteed participation with the incoming directed
buy order. However, the lead market maker may still be entitled to
participate with the incoming order instead. Accordingly, the
process continues to step 2206, where the LMM Guaranteed Offer
Process is activated.
Returning to step 2204, if, however, the designated market maker's
offer is at the NBO, then the designated market maker is entitled
to guaranteed participation with the incoming order. The process
proceeds to step 2208, where, in this embodiment, it checks if the
incoming directed buy order's size is greater than two contracts.
If it is less than or equal to two contracts, then the process
continues to step 2209, where it matches the incoming buy order
with one contract of the designated market maker's offer, at the
NBO price. It does this by generating an IOC sell pseudo-order on
behalf of the underlying designated market maker offer, and
executing the incoming buy order against the sell pseudo-order.
After executing the sell pseudo-order, the order matching engine
notifies the market maker quote engine 32b of the quantity of
contracts that executed (one contract) so that it can decrement the
designated market maker's offer.
In step 2210, the process checks if the incoming buy order still
has one contract available to trade. If it does not, then the
process terminates in step 2212 as indicated. If it does, then the
process continues to step 2211, where it matches the single
remaining contract of the incoming buy order with one contract of
the best displayed offer. The best displayed offer is the sell
order or quote with the highest ranking in the Display Order
Process according to price/time priority. The process terminates in
step 2212 as indicated.
Returning to step 2208, if, however, the incoming directed buy
order has more than two contracts available to execute, then the
process must determine if there are any customer orders that are
eligible to execute ahead of the designated market maker's offer.
Accordingly, it proceeds to step 2214, where it checks if there are
any displayed customer sell orders at the NBO.
If there are no displayed customer sell orders at the NBO, then the
designated market maker is entitled to participate immediately with
the incoming directed buy order. The process proceeds to step 2232,
where it retrieves a stored, configurable guaranteed allocation
parameter determined by the market center's business rules
("DMMGuaranteedPercent"). In step 2234, the process computes the
maximum quantity of contracts that the designated market maker is
guaranteed for execution ("DMMGuaranteedAllocation") by multiplying
the remaining ("Leaves") quantity of the incoming directed buy
order by the DMMGuaranteedPercent parameter, and rounding the
result down to the nearest integer value if necessary. In step
2238, the process matches the incoming buy order with the
designated market maker's offer, at the NBO price, up to the lesser
of the computed DMMGuaranteedAllocation size and the designated
market maker offer size. It does this by generating an IOC sell
pseudo-order on behalf of the underlying designated market maker
offer, and executing the incoming buy order against the sell
pseudo-order. After executing the sell pseudo-order, the order
matching engine notifies the market maker quote engine 32b of the
quantity of contracts that executed so that it can decrement the
designated market maker's offer.
In step 2242, the process checks if the incoming directed buy order
still has any contracts available to trade. If the incoming
directed buy order has been completely executed, then the process
terminates in step 2244 as indicated. However, if the incoming
directed buy order still has contracts available to trade, then the
process continues to step 2246, where it returns to the step where
it was originally initiated, so that the incoming buy order (no
longer directed) can continue to execute against other offers if
possible. The DMM Guaranteed Offer Process is completed, and any
remaining quantity of the incoming buy order is released to the
Display Order Process.
Returning to step 2214, if, however, there are displayed customer
sell orders at the NBO, then the process continues to step 2216,
where it retrieves the timestamp assigned to the designated market
maker's offer (the time assigned by the market maker quote engine
32b) and stores it in the parameter "DMMOfferTimestamp." In step
2218, the process retrieves the earliest displayed customer sell
order at the NBO. In step 2220, the process compares the timestamp
of the retrieved customer sell order with the DMMOfferTimestamp
parameter, and if the customer sell order preceded the designated
market maker's offer, then the process continues to step 2222,
where it matches the incoming directed buy order with the retrieved
customer sell order at the NBO price.
In step 2224, the process checks if the incoming directed buy order
still has contracts available to trade. If it does not, then the
process terminates in step 2226 as indicated. If it does, then the
process continues to step 2228, where it checks if there are any
additional displayed customer sell orders priced at the NBO. If
there are additional customer orders, then in step 2230, the
process retrieves the next earliest displayed customer sell order
at the NBO and returns to step 2220, where it checks if the newly
retrieved customer sell order was received prior to the designated
market maker's offer. It repeats this process until all customer
sell orders with price/time priority over the designated market
maker's offer have been matched, unless the incoming directed buy
order is exhausted first.
Returning to step 2220, if, however, the timestamp of the retrieved
customer sell order is not lower than the DMMOfferTimestamp, then
the customer order was not received prior to the designated market
maker's offer, and is therefore not eligible to execute in the
Directed Order Process. In this case, the process proceeds to step
2232, and executes the designated market maker guaranteed
allocation according to steps 2232 through 2244 (or 2246) as
described above.
Returning to step 2228, if, however, there are no additional
displayed customer sell orders at the NBO, then the process also
proceeds to step 2232, and executes the designated market maker
guaranteed allocation according to steps 2232 through 2244 (or
2246) as described above.
While the disclosure has been discussed in terms of certain
embodiments, it should be appreciated that the disclosure is not so
limited, The embodiments are explained herein by way of example,
and there are numerous modifications, variations and other
embodiments that may be employed that would still be within the
scope of the present disclosure.
* * * * *